CFD Trading stands for Contract for Difference. It is also a leveraged trading. This type of Forex trading provides the trader or the investor the ability to take a position on a given price of the financial asset without actually owning the underlying asset. In CFD, a contract is shared between the trader and the broker. They are exchanging the difference of the current asset value whether its indexes, shares, commodities, and currencies towards the value of the asset known at the end of the contract.
Characteristics of Contract for Difference
There are a couple of characteristics that trading CFD has to offer. Knowing these things will help you maximize your advantage in the market.
They are derivative
In trading CFD, you don’t have to own the underlying asset to trade. This means that the trader can trade and make profits in the market without actually owning the financial asset. The underlying asset in CFD cannot be owned nor sold or purchased. There is a specific number of assets provided to the trader where they can speculate the price movement, whether it’s an increase or decrease in the price value.
They are leveraged
You can get higher leverage in trading CFD. With higher leverage, traders tend to get more market exposure just for paying a small deposit. If you choose to engage in trading CFD, there’s a high possibility of gaining more profits than other kinds of trading out there. But be extra careful with leveraged products such as CFD because they tend to act as a double-blade sword.
Allows access towards the Forex market just in a single platform
Nowadays, there are quite a lot of brokers offering trading CFD in the financial market. Such brokerage is offering assets and products that are present in the world’s market. This makes trading CFD highly accessible any time of the day through a reputable trading platform.
Execute trades without fees
Similar to Forex trading, trading CFD also has different order types such as limit order, contingent order, and stop-loss order. Regular brokerage fees would require you to pay additional fees to use such services. But in trading CFD, no broker will ask you to pay these fees and additional costs. CFD brokers tend to generate money whenever traders pay for the spreads and additional commission whenever you open or close an ECN type of trading account.
No additional requirements on day trading
In most financial trading, a specific amount needs to be paid as a form of capital before traders can carry out day trading. There are also times in which limits are set on the number of trades that a trader can make with the amount he invested as the capital. But in CFD trading or leveraged trading, there are no such regulations. No restrictions are given to Day traders and they can trade as many as they can in the market. As for the capital, you will only have to invest a thousand dollars and you can trade as many as you like. This will be the initial deposit that you need to open an account.