Features of CFD Trading
Contract for Difference (CFD) is a strategy that traders can make use of to protect their trading capital. Through this strategy, traders are able to profit from an asset without necessarily owning it.
CFDs have certain unique features that allow traders to profit by using them. Listed, are some of the features.
They are derivative products
Derivative products are a class of financial assets that are made up of contracts and whose value is reliant on the asset on which the contract is based. This means that, there are no actual assets changing hands but there is a contract based on the particular asset.
CFD trading is based on contracts based on the value of the assets as the name implies. Usually, there is no ownership of assets in CFD trading.
They are traded 24 hours
Contracts For difference (CFD) are provided by financial markets intermediaries known as brokers. Brokers allow their clients 24 hours access to the financial markets. Whenever you identify an opportunity to invest in an asset through a CFD, you can do it at any time as long as you have the necessary tools as provided by your broker.
Brokers provide you access to financial markets by opening an account with them. When you open an account with a broker, they provide a platform on which you can easily contact them and get into contracts with them and trade other commodities.
You can use a margin
When trading with CFDs, you do not have to pay the full value of the asset on which the contract is based. A CFD allows the trader to pay a small percentage of the value of the asset. In the event that the contract goes their way, the trader enjoys full profit despite not having paid the full amount. Similarly, this will happen when the trader incurs a loss.
This type of transaction is known as a margin trade.
No stamp duty
Another feature of CFD trading that makes it more beneficial than other trading strategies is that it is not charged stamp duty. This happens as a result of the transaction taking place not having an outright ownership of an asset.
Without stamp duty, the trader is able to keep most of their profits that would have gone towards this charge.
CFD trading has been in existence for a long time in the financial sector. It started with hedge funds and was later as a strategy that can be used by retail traders who have little capital to trade with.
There are numerous examples of people who have profited greatly by using this strategy.
Can be applied for a range of assets
CFD trading is not limited to specific assets. It can be used to trade stocks, currencies and commodities.
Traded in lot sizes
CFDs are traded in similar fashion to forex trading. This means that when you place an amount for a CFD transaction to take place, your contract reflects a lot size of the asset on which the contract is based.
In trading, the price of an asset is usually quoted in two prices. The buy and the sell price. The difference between these two prices is known as the spread. The spread, usually is the price charged by your broker for facilitating the transaction.
CFD trading is also characterized by a buy and a sell price. This enables traders to take either a long or short position or both on their CFD. This enables traders to profit when the market goes up or goes down.
Low fees and commissions
For a CFD trade, brokers usually charge lower fees and commissions. This enables the trader to make more money from their trade.
Contract for Differences or CFD as it is known in trading lingo, is a unique and profitable strategy that traders can use. It allows one to profit from a partial payment on an asset that does not change hands.