Without buying the actual assets, you can trade in CFDs by speculating on the prices and eventually making a transaction of buying and selling. No wonder why CFD is gaining popularity across the world. Here are some of the reasons why trade CFds:
- High leverage
In CFD, it allows you to trade more using your principal capital even if you have made a transaction already. How? Since you don’t need to put up the entire amount that you are trading, you can use it for other trades.
In this way, you will gain more exposure in the market. This is what we call “margin trading” in which most of the company will only require you a 5% margin. Mind you that if you lose it does not just take your 5% deposit but it depends on the value of your certain position.
- Going short
Going short means making profit from prices that are going down. This is also called ‘short selling.’ How does it work? When you are on the market trading CFDs, you can speculate on prices. This means you will be aware if the prices are about to go up or go down. So, if the price is about to fall you can save your investments by closing your exposure to the market.
- High number of markets available to trade
Another reason to use CFD especially when you are into trading is that you can access different financial markets over 15,000 markets. Take note, trading CFDs makes it easier for you for the reason that you don’t need to access the actual platforms that you like to trade such as cryptocurrencies and other platforms which means logging in to your position in CFD means an access for different markets. Hence, you can access those platforms using your mobile phone, laptop, or personal computer by using a browser.
- Underlying markets similarity when it comes to shares
In CFDs, it is adjusted to adapt how these underlying markets work. Let us say for example, you want to buy 100 shares in a certain company so get you 100 shares. Same goes to CFD, if you buy 100 shares then you get 100 shares. Now, the good news is in CFD your position will be taken care of to counterbalance the dividends. You should also understand that since you do not actually have ownership of the shares you will not be given the privileges of share owner.
- Share portfolio hedging
How does hedging work? Imagine that you have 4,000 shares in a company. Yet, you want to keep it in the company for a long time. However, based on your speculations there would be a change in prices. Not just change in prices but specifically prices becoming cheaper. So, to avoid certain losses you tend to start a short position.
Now the truth unfolds and your prediction is incorrect, since CFDs is an open ended position then you can close it and the losses will be neutralized in the future earnings of CGT basis. However, if your prediction is right you will earn.
- Direct Market Access
DMA is offered for experienced traders. The good thing about DMA is you will have access to see everything that is available such as bidding, and offered prices without time restriction.