CFD Trading: A Better Option?

In the past several years, there has been a surge of interest in online CFD trading platforms. One of the most attractive things about them is that they offer access to all the world's major financial markets from a single platform. Thus, it becomes possible to trade in commodities like oil or copper, but then seamlessly switch to company shares, cryptocurrencies, forex pairs and other instruments, without having to open up a separate platform. The demand for this benefit has proved itself strong, especially due to the natural expansion of traders' investment interests as they learn more about new markets, not to mention the fact that global markets are growing more and more interconnected.

CFD trading is different to traditional trading in a number of ways and, most prominently, in the following respect: When you open a CFD "buy" deal on, for instance, copper, you are not actually purchasing any of the metal at all. Rather, you are speculating that the price of copper will increase within a certain time period. When that time period expires, you will come out stronger if prices did indeed rise, and the extent of your gains will be determined by the size of your deal. The same would apply if you opened deals on Samsung shares, Litecoin, the USD/JPY, or the Germany 40. Join us for a couple of minutes as we elaborate on the special benefits of this type of trading.

Low Entry Barrier

CFD trading allows you to invest in a wide range of assets while setting your own deal size. Therefore, you won't have to pay thousands of dollars in order to invest in Bitcoin or the most sought-after company shares. Instead, you choose the size of the deal that suits your budget and risk tolerance. This democratizes the trading in these types of pricy assets, letting you invest on your own terms and control the deal until it is ultimately closed.

CFD trading platforms also set you up with the power to open both short and long positions on the instruments of your choice. When you want to go short, you won't be faced with any extra borrowing costs. The deal goes through just as smoothly as its longer counterpart, and there are no limits on how many trades you can open per day, which is not always the case outside the walls of CFD trading.

Just as in the traditional trading arena, you can suit your CFD deal to your preferences. That means you can fix your stop loss and take profit orders just the way you like them. Generally speaking, your ability to tailor your CFD deal to your preferences is the same as that you would enjoy when trading traditionally.

Leverage

When it comes to leverage, however, CFD trading is unique. You'll find you have considerably more leverage at your disposal when opening CFD deals than regular ones. Leverage means the power to expand your deal size through borrowing from the brokerage. Thus, you could take a trading balance of $1,000 and open a deal on the EUR/USD currency pair worth as much as $400,000, (if you made use of 400:1 leverage). In the event you opened a buy deal on this pair and then saw the euro appreciate by 0.8% against the dollar, your earnings would equal 0.8% of $400,000 ($3,200), as opposed to 0.8% of $1,000 ($8). This is after putting down only that initial sum of $1,000.

When you do decide to employ leverage in your CFD deals, it should be done with careful deliberation because your risk is also multiplied proportionally. Especially when making use of high leverage levels, it's best to first calculate what you stand to lose before going ahead with your deal.

Leverage is a double-edged sword, and your loss potential may be greater if you do not set up limits and manage your funds correctly.

Choosing a Broker

In the field of CFD trading brokerages, it's advisable to choose a name that has been around for a long time, since this indicates a solid business model and also regulatory compliance. Speaking of which, the broker you choose should certainly be officially licensed and regulated. You want to be sure you can rely on the people with whom you are depositing your hard-earned money. There are plenty of reliable CFD brokerages out there. Check that the one you're considering has a clean record and a good name in the business.

Besides this, make sure your broker is geared up with the tools and features that enhance your trading in the ways you need. For instance, you should be able to plot technical indicators over your price charts, receive real-time quotes on your instruments, and check on the trading sentiment holding sway in the markets. Even if you are not yet experienced in using these tools, it probably won't be long before you figure it out.