A CFD (contract for difference) is a rather new financial derivative product that is available for the interested investor. It is a tool that will give you access to some pretty interesting advantages when compared to the regular investments in stocks. The CFDs are constantly gaining popularity and are now even used by the individual investors, together with the hedge fund managers and the major institutional investors. This is because of some really important advantages that you should be aware of. That is what we will highlight in the following paragraphs.
Profit Can Appear When Prices Fall Or Rise
CFD trading is normally based on the expected value of an asset. You try to predict if it will go down or go up. An asset can be a foreign currency, a commodity, a stock or an indexfund. In the event that you believe that value will go up, you will “go long” and buy CFD on the asset. In the event that you think the value will go down, you will “go short”, selling CFD for the asset. In both situations you will make money.
Hedging Positions In CFD Trading
CFD trading is useful when a certain stock is owned and your purpose is to hedge against value falls that may appear. In the event that you are now concerned about value drops. Stock positions do not have to be liquidated. CFDs will help you to hedge positions for a specific amount of time, thus offering investment protection.
For the seasoned investor, the really important advantage of using CFDs over other options is the presence of margin. Instead of paying a full price to buy an amount of shares, only a small percentage margin is necessary for the investment. That basically means that you will have a high leverage, giving you access to the possibility of a huge profit. The only problem in this case is that leverage increases risk. That is something that has to always be remembered, especially by beginner traders.
Lack Of Fixed Expiration Date
CFD trading does not present an expiration date, as so many other financial derivatives do. If you end up holding on to the expiration date for too long, worth would be really low. CFDs come with virtually no date for expiration. It is up to you to decide when to close out position. Holding on to the options is possible for as long or as short as you want to.
We can say that CFD trading has to be considered by the investors that are experienced. For the investors that are not so interested, risks are higher. However, with proper training, it is possible to end up making profit, which is what you want at the end of the day. You want to be patient and learn all that you can about CFD trading in order to be successful. While this is always the case when referring to any financial investment, with opportunities like CFD data is even more important.