CFD trading stands for Contract
for Difference and unlike normal trading gives an added advantage of leverage
and instant access to over 10000 markets. CFD trading comprises of an agreement
between two parties which binds them to exchange the difference between the
opening and closing price of a contract. They are derivative products that lets
you trade in live market price movements without owning the instrument
underlying your contract basis. CFD allows you to analyze future movement of
market price irrespective of the market rise or fall. CFD also lets you cash in
while the prices fall so that you can maximize your profit. The number of
markets available for CFD enables you to have more exposure.
There are several unique features
to CFD trading making that makes it stand out from traditional trading. It
gives the option to go long (buy) when the market is on the rise and to short
(sell) when the market is expected to go on the downward slide. Thus CFD is a
flexible alternative to trading according the fluctuations of the market as
opposed to fixed trading and hence gives an opportunity to profit from both
market rise and fall. CFD
Trade lets you offset your losses as it can be very tax efficient and
depending on the circumstances you can use losses to offset against Capital
Gains Tax (CGT).
CFD recognizes the need for
people to have 24 hour access to their trading accounts and grants it
irrespective of where you are especially when the market prices are volatile.
Thus one can always access their CFD trading account 24/7. It lets you trade in
CFD even if underlying markets are closed. It has the feature of high leverage
as it is traded on leverage. It means you pay only a small fraction of the
total value of trade to open position which is called margin. However one needs
to be careful as losses are magnified the same way as the profits are. CFD is
stamp duty free enabling 0.5% saving on each transaction.
CFD trading strategies are designed
to ensure consistent profit while trading in the financial market. One can
formulate a successful trading strategy by having a simple and pragmatic
approach. One strategy is to consider day trading with CFD. Due to its high
level of liquidity CFD works particularly well for short time periods. It
involves buying a large quantity of stocks where you incur charges only if you
hold it overnight. Day trading allows you to close the position by end of the
trading day without paying anything extra.
Money management strategy for CFD
is useful for all traders. It determines the amount of capital for CFD trading
and designates how much money to risk with each trade. A 2% risk is a good
start and can be adjusted depending on market volatility. A trailing stop loss
strategy is another very good CFD strategy. It essentially means that when you
buy a stock expecting a certain profit you also deploy a trailing loss which
indicates you have to sell regardless of the profit you can get if the price
drops below a certain point. It lets you set a stop loss amount to check your losses.
Thus CFD trading is a good alternative to normal trading.
About
CFD Trading :
CFD Trading is a part of Trading Lounge ,which is an online
trading analysis and education service that offers services such as Day
Trading, Trading Strategies, Technical Analysis, and How to Trade advice by a
reputable and experienced trading coach. TradingLounge.com.au was started
by Peter Mathers in 1982 to meet
the growing demand of accessible and
sensible education in online trading.
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