Aside from forex trading, contract for differences or CFD Trading is also a good investment option. In CFD trading, the differences in the settlement between the open and closing of the contracts are sold in cash. It involves buying and selling assets in relation with the upward and downward movements of assets.
CFD trading is a growing market and here are the reasons why it has caught people’s interest over the years:
- High Leverage
There is a greater potential return for the trader and less capital outlay as CFD Trading has lower margin requirements compared to traditional types of trading. With a minimum of 2% and maximum 20% margin requirement, a trader can maintain a leveraged position and get full market exposure. This will help them magnify their profits and spread their capital further.
- Low-Cost Professional Transaction
Most transactions in CFD trading are cheaper than other types of trading as trades are usually charged with less than 1% of the total price of the trade, even though it offers the same order types like in traditional trading such as contingent orders, stops, and limits. Also, the share duty or interest in holding a long position in a CFD trade is minimal and there is no stamp duty as stocks are not actually bought.
- Worldwide Market Access
As CFD Trading is fastly growing, a trader can explore over 17,000 markets worldwide that provide access 24/7. It can be a good alternative financial vehicle as brokers also offer treasury, stock, currency, index, commodity, and sector CFDs.
There are trading platforms that offer different CFD trading markets in one access which is very convenient especially if you want to explore a different arena.
CFD trading mimics the underlying market closely which means that buying 500 CFD shares of Company ABC is equivalent to buying 500 Company ABC shares, without the shareholder’s privileges. A CFD trader can access the liquidity offered by the provider and trade on a large scope of financial markets without having to own the underlying asset.
- Go Short or Long
Another good thing about CFD trading is that is flexible, which means even when the market collapses, the trader can still take advantage of the declining price and have gains. Non-ownership of assets is also an edge as it makes selling and purchasing more convenient. It also allows CFD instruments to be shorted on your preferred time without borrowing costs to achieve the margin requirement. You just have to sell the price when the market goes down, and buy when the market goes up – it’s that simple.
- Minimal Restrictions and Tax Efficiency
Day trading in CFD isn’t as limited compared to other kinds of trading as there is no minimum capital requirement or account limits, while allowing you to trade on margin. Although CFD is subject to capital gains tax (CGT), there is no stamp duty to pay since there is no asset ownership. Also, CFDs don’t depreciate over time.
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