Why Should One Trade CFDs?

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:

  • Hedging: CFDs can be integrated in an investment portfolio to hedge against the risk of physical shares.
  • Economical: The commission on trading CFDs is generally lower than that on traditional share dealings. This enables investors to execute more deals on smaller price movements, without having to worry about large, piled-up commission. CFDs are therefore best-suited for day traders. Besides, CFDs are not subject to overnight financing charges.
  • Liquidity: Since contracts for difference trades usually entail investment in a short timeframe, the funds are not locked up. This creates enough liquidity and flexibility to execute multiple deals. Additionally, CFDs do not have any maturity date, unlike other investment vehicles, such as futures and options.

Furthermore, contracts for difference may be traded on several financial and debt instruments, from shares and commodities to foreign exchange, indices and options.

Contracts for differences are undoubtedly a profitable investment vehicle, but in the absence of proper money management techniques, your investment may take a downturn. The high leverage and low transaction costs can easily lure an investor to go overboard. To avoid a detrimental financial situation, seek the help of a professional investment firm. White Swan Globals Markets Financial has extensive experience in creating custom CFD contracts. Moreover, clients of White Swan Globals Markets benefit from low margin rates, which help to magnify their investment returns.

 

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