With some of the previously discussed risks associated with CFD trading, you may be wondering what advantages CFDs hold over more common trading forms. To get a better idea of why CFD trading continues to maintain popularity with traders, we’ve compiled a 5-part list of key benefits to better help you decide whether CFD trading is for you.
Trading CFDs on Margin
We’ve talked about the risks of leverage in CFD trading, but, when exercised with caution, this level of leverage can form a powerful tool for taking positions on the market without having to invest large quantities of your capital. With CFD trading, you may find you can make a trade based on as little as 1% of the underlying asset’s market value, whilst maintaining an entitlement to the same gains and losses as though you had paid 100%.
This can spell good news for traders with less capital at their disposal than larger trading accounts because, when coupled with an informed trading strategy, you can stand to make large profits based on your comparatively small investment.
Benefit from Rising and Falling Markets
One of the greatest appeals of CFD trading is the ability it grants traders of going long (buying) or going short (selling) and profit on either direction of the market. This increased flexibility can be really useful for traders of all experiences, because, and not least because CFD trading gives you the opportunity to short sell as a means of hedging your portfolio.
If you feel that your portfolio stands to lose some of its value based on your predictions for the market, CFDs can be an excellent tool for offsetting this loss by short-selling. In the event of an unfavourable turn in the market against your existing portfolio, you can trade with that fall in an effort to recuperate the cost to your portfolio using CFD trading.
Convenience
Forex traders can use many of the tools they are familiar with to trade equity index and commodity CFDs on the same platform. The advantages of CFD trading typically boil down to flexibility; you can select contracts that vary in increment value and currency type and cover an eclectic range of markets, including (but by no means limited to) metals, indices and energy.
No Fixed Lot Size
Similarly, CFD traders are afforded a certain degree of flexibility in the lack of fixed lot size. A fixed lot size will see the same quantity used upon reorder. Not using fixed lot sizes in CFD trading allows for more orders to be placed.
Open All Hours
Most markets available to CFD traders are open around the clock, meaning that CFD trading can be as much or as little as you want to make of it. In other words, if you want to trade into the early hours, you’ll never be limited by the closing times of banks or firms.
Conclusion
Like we say, much of the advantage of trading CFDs stems from increased trading flexibility. It may be that you don’t yet feel ready to take on all the variables available to CFD traders, but even if this is the case, it’s always worth bearing CFD trading in mind as a useful alternative to more common trading practices.
