The stock market is a highly lucrative trading platform. However, for an active investor, the stock market holds one big disadvantage – it is difficult to go short. This implies that the investor has to hold on to the shares for a considerable amount of time and cannot execute deals immediately. Contracts for differences (CFDs), however, enable investors to go long as well as short.
CFDs offer all the benefits of share trading, without having to own them physically. CFDs are traded on margin, wherein the profit or loss is determined by the difference in the purchasing and selling price. And, since CFDs trade on margins, investors are required to only commit a small percentage of the net value of the proposed trade.
Benefits of Trading CFDs
The biggest advantage of owning CFDs is that it lets you profit considerably during a falling market. Contracts for differences can be executed more swiftly, facilitating immediate trades, rather than waiting for the market to recover. Other key reasons to trade CFDs are:
Furthermore, contracts for difference may be traded on several financial and debt instruments, from shares and commodities to foreign exchange, indices and options.