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Trading CFD Shares Has Many Advantages
By John | May 16, 2010
Investors are turning to Contracts For Difference (CFDs) as a more flexible alternative to traditional shares trading.
CFD trading has numerous advantages over traditional shares trading
- Easy to understand
- Learning to trade CFDs is quite simple
A CFD is an agreement to exchange the difference in value of a share at the time it is opened and at the time at which it is closed.
The amount of money you make, or lose, is determined by the amount of contracts you hold multiplied by the difference in price at which you opened and the price at which you closed. Simply put, if you think a company’s share price is going to rise you ‘buy’ or if you think it likely to fall you ‘sell’.
The degree to which you are correct in your CFD trading affects how much you make or lose.
Low transaction costs and leverage
CFD share trading is all pretty much done online nowadays, which means you don’t pay any brokers fees.
You trade on margin, that is you pay a small initial deposit and that allows you to take a larger position than you would be able to in traditional shares trading. So, while profits can be substantial so to can losses.
It’s important you find a CFD provider who offers Direct Market Access, as then you’ll benefit from dealing at the market price and not the price governed by the actual CFD provider.
You will have to pay a small commission on the full value of any transaction, typically it’s around 0.1% on shares.
The ability to go short as well as long.
With share CFD trading you can take advantage of your knowledge of the financial stock markets without having to worry about the actual underlying performance of a company.
If you think a share price is likely to rise or fall then the potential for profit, or loss, is still the same.
Many different markets to choose from
The range of markets to choose from is extensive, not only shares, but stock indices, commodities and forex too. Some CFD providers also offer 24-hour trading on certain markets too.
One thing to note is that you should make sure the provider offers the full range of tools to help you manage your risk.
CFD providers should provide you with a range of tools to do this, including trailing and guaranteed stops. According to a report from research organisation Investment Trends the largest CFD provider in Australia is IG Markets.
IG Markets was also recently awarded Best CFD Provider 2010 Money magazine Best of the Best awards. Catering for beginners and experienced alike, IG Market offers free education, expert analysis and Direct Market Access.
Remember that CFDs are a leveraged product and can result in losses that exceed your initial deposit. CFD Trading may not be suitable for everyone, so please ensure that you fully understand the risks involved.
Topics: Trading |
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