Are you already in the business of the financial market? Are you too focused on stocks? Why not expand your trading portfolio with CFDs?
As 2018 concluded, the complete market capitalization of stocks around the world was only short of USD70 trillion. Yet, stocks are appealing for investors. For beginners in trading, they are easy to understand, and to buy and sell. They also offer a good tip for you to stay ahead of inflation. Stocks also lets you take advantage of a developing economy. Moreover, they give a sense of security because you own a part of a tangible company.
Stock trading could give a lot to you and could also be the best investment for you. But, CFD trading has few main advantages compared to stocks, which made them gain popularity in the past years. This means that it can also be useful to add it to your trading portfolio.
It is short for a contract for difference. It is a derived product that allows you to exchange financial markets like forex, stocks, commodities and indices, without actually owning the assets involved.
In trading CFDs, you are actually entering a contract with a broker, to trade the price difference of an asset from the time to enter the trade until the time you exit.
Trading this product may sound like a typical stock trade, but CFDs give a few unique benefit which are detailed below.
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Contract for difference lets you increase your buying power for you can exchange them on leverage. This only means that you just have to put a portion of the whole value of your trade, which is called the margin, for you to gain complete exposure.
But you have to keep in mind that while more exposure increases your potential earnings, your probable loss is as well increased to the same level.
Go Long or Go Short
In stock trading, you can only profit when the financial markets are increasing, and these markets nearly never rise in a straight line. However, in trading CFDs, you are able to speculate on the movements of the price in either way. This is known to be going long and going short. The former is done when you think the market will rise, while the latter is done when you think the markets will fall.
Thus, when you think that the share amount of BP will fall, you can sell a stock CFD, and that is going short. It is possible because CFDs are derived products and you don’t have to really own any shares to sell based on stocks.
The advantages of CFDs over stocks are not limited to these two. CFDs have unique characteristics which you can take advantage of like the entry to a large range of markets. If you want to venture on the markets, you will not be needy to limit yourself anymore. You can generally trade CFDs on a larger range of holdings.
If you are generally an investor of stocks and would also like to give CFD trading a shot, switching between the two products can be quickly and easily done. With the right partner, platform and technique, you can experience full advantages that CFD can offer.