What is CFD exactly? It stands for Contract For Difference and it gives you the ability to trade by allowing you to take a position of the price of a certain commodity, indice, cryptocurrency and other instruments without needing to own them. What is unique about CFD trading is it enables traders to earn from rising and falling markets.
Taking advantage of Leverages
What are leverages? Simply put, it enables the trader to make much larger profit as you deposit a very small deposit. A lot of traders get into CFD trading mainly for this aspect. You only need a certain percentage of the total value of the asset to open and continue the position with the same exposure. A lot of traders would play with leverages but word to the wise, this should always be done with proper research and risk management as this can, on one hand, give you a lot of profit but may also potentially give you heavy losses depending which way the market goes.
Rising and Falling Prices
Under your research and you project that the prices of a specific asset will fall, you may go short or sell so that you can earn from the fall of the price. If your projection would give you the impression that the price of your asset is going to rise, you may go long or buy and you will still profit from the increase of the price. How much you will gain or lose is dependent on the lot size and the movement of the market price. Another reason why traders simply love to trade CFDs is you being allowed to either go short or long plus the effect of leverages coming into play giving the trader different trading advantages that does not exist with other financial markets.
Derivatives? What does that mean? It means that when you get into CFD trading, you do not need to own the underlying assets. At all. All you are doing is you speculate on whether the price is going to fall or rise. As you trade CFDs, when you trade in stocks, you will need to get the legal certification and stock certificates in order to have ownership of the stocks you bought. This is where the situation with stocks is kind of not practical for some traders as they want things traded as fast as possible. With CFD Trading, you do not necessarily own the shares and you are simply profiting from the speculation of the movements of the share. Most traders pick these over other markets for its fast paced aspect and you refrain yourself from going through the hassle of waiting for the certificates to be given to you plus the other legal documentations just so you will be able to trade them in the market.
If you are looking into trading that will not take much time and will be giving you a potential gain that is not present in most markets, CFD trading might be the one for you.