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CFDs - The Present-Day Investment Tool
by: wanitadof on
Date: Fri, 29 Oct 2010 Time: 11:46 PM
What Is CFD?
Trading in financial derivative products now has a novel concept with CFD which is an acronym for "contracts for difference." This concept involves trading of CFDs by getting into an agreement with an online marketing group to gain profit from the variation in the stock value. It is basically a contract between the buyer and the seller. As per this contract, the buyer would open a position of a particular quantity of a stock and then close the position when deemed suitable. As per this agreement, the difference between the total value of the shares between the closing and opening would be exchanged between the buyer and the seller. If the closing value is higher, the buyer would get the difference as a profit. But if the closing value is lower, the difference would be debited to his account as a loss on the transaction. In each case, the online company would be entitled for a commission on the CFD trading transaction.
Advantages Of CFD Trading
The popularity of CFD trading stems from the many advantages that it offers. One of the main advantages is that you can make a considerable amount of profit in a short time, provided your speculations are correct. There are many trading and investment options such as investment in commodities, assets, and Forex. Another important advantage is that you can do trading to the extent of twenty times your initial deposit. The leverage is 20:1 which implies that with an investment of $10,000, you can do trading up to $200,000. Moreover, CFDs also allow you to go either short or long on your transaction so that you can gain from rising and falling markets. As markets in different countries of the world open at different times, CFD providers allow buyers to trade at any time of the day or night.
Risk Management Strategies
CFD is a leveraged product that allows you to deal in a much larger volume of products than what your initial deposit would cover. As such, you can make a large amount of profit from your limited resources. But, you can also lose if the market suddenly drops and the extent of your loss will also be far greater than what your deposit can withstand. CFD providers allow you to issue stop-loss orders. This makes it obligatory for the provider to sell the instrument if the price falls to a certain pre-determined level so that the amount of loss can be kept within preset limits.
How To Get Started
Before you step into CFD trading, it is important to understand the full implications, risks involved, and the correct method of trading. This way you can avoid losses and make a profit. The first step is to browse the websites of different CFD providers and compare their terms and reputation. Once you make your choice, you can open an account with them on an automated online form. When the account becomes operational, you will get login details. At this stage, you will have to deposit the amount with which you wish to start CFD trading. This can be done either with your credit card or by transferring funds from your bank. Once the money is transferred, you can start CFD operations.
It is easy to make a profit with CFD trading. But, it is also possible to make a loss. Therefore, it is better to speculate with caution.
About the Author
CFD trading is a new concept of trading in financial instruments which allows you to trade up to twenty times your initial deposit. It is important to find a reliable online CFD trading provider and understand the full implications of the trade and tread with caution.
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