What is CFD Trading? | CFD Trading Explained!

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On September 12, 2016
Last modified:October 19, 2016

Summary:

what is cfd tradingCFDs, which is a short term for Contracts for Difference, is a new market that is gaining popularity fast and getting noticed by many retailers across the planet. CFD translates to an agreement between two parties willing to exchange differences between a contract’s opening and closing price. Traders use online CFD trading broker for the purpose of trading and speculating price movements in plenty of financial markets and can see prices fall and rise. CFDs are also used as a platform to trade short (sell) and profit from falling prices & can choose to go long (buy) and profit when prices start rising. CFDs allow traders plenty of trading flexibility making it easier for them to rake in profits from financial markets both when prices are rising and falling.

Moreover, Contracts for Difference is a leveraged product; this means that traders only use a marginal amount of their investment to maximize their market exposure.

Benefits of CFD Trading

With a leading investment platform offering CFDs, investors are bound to profit from the following actions:

Benefiting from markets falling and rising

If you speculate that a market is likely to experience a loss of value in the shorter term, traders are asked to use CFDs to sell and will experience a profit when prices fall. However, remember should the trade price move against the trader’s bet/hunch, then he/she will suffer a loss.

Best investment potential leveraging platform for a reduced capital outlay

Traders using Contracts for Difference use a slight fraction of initial capital outlay for a sizeable direct purchase.Under CFDs trading rules, operators can use an amount such as 10-20% of the total equivalent and use it to trade and magnify their return on investment.

The move, however, works wonder should the market moves towards the expected direction. But the move also comes with higher risk levels in instances where the market moves against the trader. 

Global Markets Access

Contracts for Difference grants traders access to numerous markets across the world that wouldn’t have been available to them from a singular trading platform.

Traders use best CFD trading platform to speculate on price movement on stages such as; Wall Street Index, FTSE 100, or the Singapore Index. 

CFDs Hedging

Many investors use CFDs as hedging tools for the purpose of offsetting losses in their portfolios. With the ability to short sell and make a profit from falling market prices, investors can retain their portfolio without accruing any significant loss in the portfolio’s overall value.

Bottom Line

Contracts for Difference derivative products make it possible for investors to participate in live market price movements. Traders don’t need to own the instrument upon which the contract is based.

Traders use online CFD trading platform to speculate future market price movement regardless whether there will be a rise or fall in the price. Using CFDs, investors can short sell and profit from falling prices.

 Investors use this platform to hedge their portfolio disposing of any potential losses in their physical investments value.

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