Cfd Trading

CFD trading stands for “Contracts For Difference” trading. It is a derivative trading type and investing money through CFD trading means you earn profit based on the fluctuations in the prices of shares and stocks. Let’s assume you trade in a CFD stock at a CMP (Current market price) of $10.00 and the price of the stock rises to $10.75, so you’ll be able to make a profit of $0.75 per share and if the quantity of CFDs was 100, you’ll make a $75.00 profit straight off!

Now that you have understood what CFD trading is, let’s understand the reasons that make this trading type so popular.

Large profits even for smaller trader

CFD trading involves leveraging and usually leverage is 10:1. However, some CFD traders may even allow leveraging in the range of 20:1. So if you are a small trader, you could still make decent profits in the stock market. Let’s explain with the help of an example: Assuming you are only getting a return of 20-30% on a trading system each year currently, so if you have a float of $1000, you end with a $3000 profit in a single year. But if you are doing CFD trading, you can get a 300% return p.a. because of the leveraging option, leading to more profits every year.

Make profits even when the trend is bearish

With CFD trading, short selling is easy and making profits even in a falling market is easier. This help you get better returns on your investment and allows you the singular benefit of being able to make money in bullish as well as bearish markets.

Low costs better returns

CFD trading involves lower operation costs as compared to stock trading. The reason for this is the lower “cost per trade.” So you end up with gains that are over 10 times more as leverage option also contributes to enhanced profit yield. There are only two main costs involved in CFD trading and they are interest and leverage.

Setting stop loss is easy

CFD trading gives you the advantage of being able to set up automatic stop loss for stocks. As a trader it helps you to sell of a stock in less time, while also not be emotionally drained when trading it. As soon as the stop loss figure is achieved, the trade is completed. This helps you to avoid slipping and benefits you to get out of trade just when you wanted to.

Placing order in the evening after market close

One of the major advantages of CFD trading is the ability to place an order during the evening. If you are interested in a particular trade and won’t have the time to trade in it in the morning, you can simply place the trade order in the evening or night before. Also, you can adjust your stop loss in the evening. Because of the mechanical trading system, you don’t have to be at your computer all through the trading day.