Contract For Difference or CFD is a much popular format of trading. It stands for a contract between the buyer and the seller. The contract secures the deal for the difference between the current value of any asset and its value at the contract time. It does not consider the asset’s underlying value. Only the difference between the entry and exit prices is considered. Hence, it is a much convenient and easily understandable trading method.
1. It provides Higher Leverage:
In CFD Trading, you can get much more leverage than traditional trading. It has a very low maintenance margin ranged mostly between 2% to 3%. Lower margin requirements increase a trader’s potential returns but, it may also increase trader’s losses. However, high leverage is a great advantage of CFD Trading.
2. Access To Global Market From One Platform:
You can avail CFD products in most of the world’s major markets. You can access those products at any moment in the day. This massive flexibility with CFD is a major advantage to the traders.
3. No Necessity to Borrow Stock due to Shorting Rules:
Many markets prohibit shorting. And, due to that traders get to borrow the instrument before selling it short. Those markets mostly have different margin requirements for long and short positions.
CFD is a blessing to traders operating in such markets. CFD instruments can be shorted at any time. And, the trader doesn’t need to borrow costs because he/she doesn’t own the underlying asset.
4. Trader Gets Professional Execution Without Any Fees:
Brokers mainly make money on the spread payment of the trader. When the trader needs to pay the asking price and to sell or short, the trader needs to pay the bid price. But, with CFD Trading, traders get benefits like stop limits and contingent orders without any commission or with very few fees. So, the trader can save a great amount in CFD Trading.
5. There Are No Day Trading Requirements:
Many markets have a fixed minimum amount for day trade capital or have a fixed limit for the number of day trades to be made within certain accounts. But, there are no such restrictions in the CFD market. There every trader is free to do day trade with a very little minimum deposit of 1000 USD. This makes CFD Trading very advantageous for most traders.
6. Diversity In Market:
In CFD Trading, traders get plenty of options like index, stock, currency, treasury, sector, and commodity CFDs. So, this makes it easier for those who want to trade in diverse financial fields.
7. Traders Get Broader Hedging Options:
As traders get to commit limited capital to open a position, they have access to the funds that they can use to implement hedged positions. This limits their risk at any given time.
This strategy is useful when you have taken a risky position on a CFD, or when one long-term position of yours is accruing losses. In such a situation, instead of selling positions at a loss and facing huge fund losses, you can open additional positions to generate earnings that can balance out your initial position.
8. No Expiration Date:
CFDs don’t have any fixed expiration dates and they have very few restrictions on closing a position. Their valuation also doesn’t decrease over time.
Due to these benefits, traders can focus and be patient in long-term positions.
These are some of the most vital benefits that traders get from CFD Trading. At VFM Brokers, we are always eager to provide you the best advice and services related to trading. To consult with our experts and to avail our services, feel free to contact us. Also, visit our blog page for more information about various trading methods.