Should you trade CFDs?

efore you make an investment, you need to know the pros and cons. By knowing this, you can be fully aware of the risk you are taking and whether the risk outweighs the benefits.

The advantages of CFDs

CFDs offer great flexibility to traders and speculators.

CFD trading would not be as popular if it did not have certain advantages for traders.

Higher profits

We have already seen how a CFD trader can make a lot more money than another who trades the underlying asset. In our example above, you could have made a profit of $ 4,900 on a $ 1,800 investment in the Gold Canadian day trading , whereas you could only have made $ 50 if you had bought gold. physical gold.

This example proves that it is possible to make much more profit from CFDs than with any other instrument. However, the higher the potential profit, the riskier it is.

Little capital required

Few individual investors can afford to buy, say, a stock of Amazon for $ 3,000 and pay the full cost. And we are only talking about an action!

On the other hand, with CFDs, a broker offering a leverage of 1: 100 will only ask you for a margin of 30 dollars to buy the equivalent of an Amazon stock. CFDs therefore allow traders with limited capital to take advantage of the financial markets.

Profit up and down

When you buy stocks, you can only make a profit when their price appreciates. On the other hand, when you trade a Online trading, you can speculate on the price movement in either direction.

So, if you think the Amazon stock price is going to go down, you can sell it short by opening a short position on its CFD. You can do this because CFDs are derivatives and you don't need to own Amazon stocks to sell their CFDs.

If you have sold an AMZN CFD and the price of the group's shares falls, you profit by buying back the CFD at a lower level and pocketing the difference between your entry and exit price.

No expiration date

Unlike other derivative products like options or futures, CFDs are not subject to a time constraint. They do not have fixed expiration dates and have far fewer restrictions on position closing.

This provides considerable flexibility for scalpers who can enter and exit at any time without constraints.