Michael Bishop/ February 3, 2016/ Finance, Money/ 0 comments

What is CFD trading?

CFD stands for contract for difference agreement where the client agrees to exchange the difference between opening and closing point of an underlying asset. CFDs are derivatives in the financial trading field and the trader never take the actual position with the asset in the market. The CFD is just a contract between the two parties and no actual asset is owned by any party. The result is positive when the asset moves in accordance to the position taken. Irrespective of the direction of the underlying markets, the CFD traders can take positions in the market. For hedging purposes trading CFD online is a popular technique. They provide an offset to the losses when the investments sour. CFD trading is becoming more popular all around the world and there are thousands of markets available across the globe in which traders can take the exposure.

Benefits of trading CFD online

CFD BenefitsOnline CFD trading has become a popular way of investment in the financial markets and the number of traders in this field is increasing. Among the many advantages of trading CFD online is the high leverage offered in CFD trading. It starts with as low as 1 percent margin with most of the brokers. This means that you can trade with the position of $1000 even if you have only 10 dollars in your account. The potential of making good profits is thus multiplied by using Leverage.

In CFD trading you can trade with a range of commodities, stocks, indices, Forex and others. The amount of capital needed is related to the margin requirements only and you are open to thousands of markets to trade. Many traders use CFDs as a means of hedging other investments they have done. There are typically thousands of markets you can trade through CFD online and a wide range of derivative options are provided to the traders.

The cost related to the holding and transferring of assets are absent because you are not taking any possession of the underlying assets. As a CFD trader you always have the option of day trading while conventional markets may impose restrictions on your trading activities due to minimum capital required and daily trade limits imposed by them.

When trading CFD online you can easily register your CFD account with a minimum deposit of $1000. CFD trading provides similar order types like stop-loss, take-profit, limit orders and others. A nominal fee is required to take guaranteed stops but overall there are better fee arrangements for CFD trading. Through spreads the brokers generally generate the profit. When you buy, you have to accept the ask price and when you sell you have to accept the bid price.

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