Trading with a contract for difference (CFD) allows you to take advantage of all the benefits of trading stocks, shares and commodities without actually owning them. A CFD enables you to make money from an asset’s price change – whether that is going up or down – which is why traders find it so helpful.
Reputable CFD brokers offer some of the most competitive spreads on the market and tight minimum trade sizes, fast execution and 24/5 customer service – making it possible for everyone to benefit from this type of trading. So if you’re interested in unlocking these opportunities, here are eight reasons why you should be trading CFDs:
1. Trading flexibility
Using a CFD means that you can trade on margin, which means you don’t need to have the total value of the asset you want to buy. This allows for speculative trading with a lot more power than if you were transacting directly. In this way, it’s possible to gain a great deal from small price movements.
2. You don’t need a large deposit
Using leverage is a significant advantage in CFD trading. It allows you only to put down a proportion of the total cost of an asset. So even without prior knowledge of market dynamics and with as little as a £1,000 (or equivalent) deposit, it is still possible to open trades that will make profits – at least in theory! Things are not always that simple, and there are other factors you should consider before trading CFDs, but this is what makes it such an alluring prospect for new traders.
3. It’s possible to make money in a down market
Unlike trading shares directly, where it is generally thought that the market’s sentiment needs to be positive or at least neutral for you to make profits, using CFDs means that even if the market is showing signs of deteriorating, you still have multiple options available – including shorting. This gives traders access to other opportunities where they would not otherwise have them and allows for more flexibility than just buying and selling commodities or shares on their own.
4. You can trade with less capital
Trading with CFDs means that you only need part of the total value of the asset you want to trade, and this doesn’t necessarily have to be your capital. This means that traders with even relatively small budgets can make trades or open positions without having an eye-watering high minimum trade size.
5. Protecting your capital
As well as giving access to trading opportunities, it can also help protect your money by removing some of the downside risks. Since the maximum loss is equal to what you put down as a deposit, there are no surprises in losing more than expected should things take a turn for the worse.
6. Short selling
Short selling allows you to benefit from any fall in prices, which may happen over time, not just when buying shares directly. As you are trading on margin, you need to put in a deposit, and your position will be credited immediately.
7. Trade indices
Many traders use CFDs to diversify their portfolios or supplement existing trades rather than make directional bets on going up or down markets. By taking a view on indices such as the FTSE 100, S& P, Dow Jones, etc., either long or short, there are additional opportunities available beyond the usual trading method – mainly when trading stock markets around the world.
8. Trading commodities
If you want to gain from movements in commodity prices without directly owning them, then using CFDs can provide an additional market for this type of asset, which goes far beyond what can be offered by trading cash or spot metals. This means that traders wishing to take positions in commodities without physically holding them can do so with ease while still benefiting from the same dynamics as regular commodity traders.