Whilst Contracts for Difference (CFDs) are a relatively new financial product the advantages of using CFDs versus traditional stocks are many. Today will have a look at the main advantages of using CFDs compared with traditional stocks.
The top 3 advantages are...
- Leveraging your account allows more profit and loss;
- Small initial outlay - CFD margin; and
- Trade world markets through the one CFD trading account
Leveraging your account allows more profit and loss
By far the greatest advantage of CFDs versus traditional stocks is the ability to leverage your capital. If you had $10,000 in share trading account then the most you could ever trade is $10,000. If your capital was all tied up in positions that you found another trading opportunity you would have to either sell an existing position or let the trade go by.
On the other hand, a CFD trading account with $10,000 in it would allow you to trade up to $10,000 and if you noticed another opportunity then your CFD account will allow you to take that next trade. This is called CFD leverage and it's by far the greatest advantage of CFDs versus traditional stocks.
The important thing to remember about CFD leverage is to keep it very, very small. As a basic rule of thumb you should not leverage your account at more than three times if you are a new or inexperienced CFD trader.
Small initial outlay - CFD margin
The next major advantage of trading CFDs versus traditional stocks is the fact that you only need a small amount of money upfront in order to control a much larger amount. This is known as a CFD margin. For example, if you wanted to trade a $10,000 position on Rio Tinto you would only need around 5% or $500 upfront in order to control that $10,000 position.
Contracts for Difference are almost exactly like trading shares except the CFD margin means your money is working so much harder you. You can imagine if you had a $10,000 position in Rio Tinto with $500 of your own money and the price of Rio moved 5% your favour then you would be sitting on a $500 profit. As you only put in $500 of your own money this would result in a 100% return cash on cash.
Trade world markets through the one CFD trading account
The third greatest advantage of trading CFDs versus traditional stocks is the ability to trade many of the world's stock markets from the one CFD trading account. If you have an account with a market-maker CFD broker it is quite common to be able to trade in excess of 15 worldwide exchanges through the one trading account. In addition to that you can also trade spot forex, indices, sectors and most commodities from the one CFD trading account.
Action: Discover the 7 most Critical CFD Trading Tips and 2 of the most common CFD Trading Strategies. Learn more about the CFD revolution by going to http://www.learncfds.com/ Article Source: http://EzineArticles.com/?expert=William_Potter |
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