Introduction to CFD Trading

CFDs or Contratcs for Difference are a flexible method of trading on the price changes of products such as indices, shares, currencies, commodities and treasuries. Unlike buying shares, when CFDs are traded, one need not physically owe the product and does not have to pay its cost of ownership such as stamp duty or account management etc. This also indicates that you can sell and buy back the product at a later stage called as going short.

There are certain things to be kept in mind while trading CFDs. You must know that with all CFD providers tradable CFDs, margins and spreads may vary from time to time without bringing into notice with market maker. The commission given by market makers may vary or may be negotiable. There may be certain special offers running for exmaple, reduction in commission if you trade more than a specific number of times in a month. If you are trading with guaranteed stops they may not be present on every CFD that can be traded. So trading with a reliable CFD provider plays a very important role.

CFD trading has gained popularity among private players because of their flexibility as trading instruments. They allow trader to go long or short, protect existing positions and leverage their trades. In contrast to any other traditional share trading where one has to pay the full amount of share value through the broker to assure that you fulfill the conditions of the contract. The best way to understand CFD trading is to consider it as purchasing shares with a short term loan from your broker. You receive loan and pay interest on the taken amount on daily basis. But when the contract is terminated you have to pay the difference and reap the profits.

Advantages of CFD Trading

Allows you to trade on both rising as well as falling markets

CFD trading allows you to trade on the cost of a product both going up as well as falling down and try and reap benefits of both selling as well as buying opportunities. CFDs are used as a hedging tool by many investors to protect their current portfoilios from the risks of short term volatility.

Allows you to make use of your capital efficiently

One of the big advantages of Online CFDtrading is that it allows you to trade on margin which offers you leverage. This indicates that you do not have to put down the full value of a position while trading and since your money is not stuck up in one transaction, it can be used for further investments.

 

About Trading Lounge

Trading Lounge is an online trading, analysis and education provider 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.