Every day more traders use CFD trading as part of their investment strategy. Contracts for difference (CFDs) provide ample profit potential for novices and seasoned traders alike.
One of the major advantages of CFDs is its flexibility, as traders can grow their position, speculate on a wide range of assets and more. Let’s explore the benefits of CFD in greater detail.
Why CFD trading?
Attractive leverage for traders
You can use leverage in many different trading markets, such as the forex market, but CFDs offer higher leverage potential. This can be very attractive for experienced individuals aware of the risks. You can learn more about using leverage successfully by checking out our blog.
A diverse set of options
Want to speculate on the price of gold or another asset? You can do so with a CFD and trade more than hundreds assets from one account. Prefer to trade on the performance of publicly floated stock or perhaps a broader index? CFDs make this possible too. This is one of the key reasons why CFD trading has generated so much interest globally — there are simply so many different strategies for traders to execute.
The best part is you’ll be able to do all this from a single trading platform, MetaTrader 4 (MT4). This flexibility is a big plus point for some traders.
More freedom in trading
CFD markets permit short trading — i.e., selling a position you believe is about to fall in value. This means traders have more freedom when they make moves with CFDs and can potentially profit no matter which way the market is moving, provided they predict the right direction.
More choice in lot sizes
CFD traders may be able to trade with much smaller lot sizes, making it easier to open and close these smaller trades. Smaller lot sizes are far more suited to traders seeking to reduce risk and capital outlay — although it’s important to remember that there will still be some level of risk involved.
Day trading possibilities
CFD markets also permit day trading — traders open a position for a few minutes or hours up to the time of closing for the market in your area. Traders can then take profit or settle the loss. This means there is no need to keep financing your position long-term, as the trade is opened and closed within the same trading day.
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Frequently Asked Questions
A CFD may have an expiration date, and you will need to check whether or not this is the case when you trade. CFDs are contracts for difference, and several parameters may be built into this contract. So, the CFD may expire at a predetermined point in the future, or it may simply roll over. If the CFD is set to roll over, it will remain until it is manually closed.
It is certainly possible to hold a CFD position overnight. If you are looking to benefit from long-term price movements when CFD trading, you'll have to keep the position open across multiple days. You can do this, but there will be a cost associated with this. For this reason, many traders in the CFD market prefer to engage in day trading.
One of the advantages of CFD trading is that there are fewer restrictions on trading when compared to opening positions in other markets. This means a minimum contract size should not be imposed on a CFD trade, and traders will instead be able to open as small or as large a position as they see fit.
However, traders may still need to make a minimum deposit when signing up for an account and maintain a certain margin to keep their trade open.
However, traders may still need to make a minimum deposit when signing up for an account and maintain a certain margin to keep their trade open.