CFD or Contract for Difference is a financial instrument giving the trader an opportunity to get profit, based on the fluctuations in the value of the certain asset (the basis of the contract) without having an asset itself.
Commodities, stock indices, or different goods can play the role of the basic asset. As well as in the Forex market, the trader’s earnings depend on the difference between the opening and closing prices. CFD is an asset which is derivative and it has been in the market for a long time. However, it gained its popularity among Forex traders just recently. Find out the benefits of CFD below.
1. Margin Trading
It’s possible to use leverage on CFD trading, as well as in Forex. It allows traders to make transactions with amounts much bigger than their deposits. It also gives an opportunity to make a relatively low initial deposit.
Comparing to stocks trading, CFD is much easier, while you don’t have to transfer the goods physically. Your profit depends on the difference in prices for traded assets in various time periods.
3. Short Positions
With CFD, you can not only open the buy (long) positions but also open the sell (short) ones. And you don’t need to have the underlying asset available to do this. By the way, previously, this opportunity was available just for big professional investors.
4. Investments diversity
Forex traders can diversify their capital more thanks to CFD trading. The more tools you have in the investment portfolio. The lower the risks of loss because of adverse price changes are.
Another extra advantage of CFD is that it allows you gaining profit at the expense of the basic asset movement and avoiding additional costs, which are always present in the conventional trade with the same asset.