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Make The Most Out Of Your CFD Trading Account

by: tonyamksd@aol.com on Date: Tue, 9 Nov 2010 Time: 12:14 AM

CFD trading offers a smart way to manage your money. This helps you in leveraging your bets and using them to your fullest potential. A relatively small market movement can produce major changes in your portfolio. But there are some things that you need to understand in order to be able to manage your account correctly.

Minimum Deposit: Money lying inside the account does not bear interest. The best way to use you money in this case is to keep as less money in your CFD trading account as possible. The best way is to move funds electronically when you are trading to your account. This way you get the best of both worlds, the interest from your bank account as well as the leverage from CFDs. To do this, you must have a CFD account provider that permits zero balance in the account.

Understand Withdrawal Procedures: Similarly capital gains must be moved to the account where they bear interest. Please make sure that there are no charges for making withdrawals as you may lose valuable interest if you are stuck with the money in your CFD account.

Understand Your Risk Appetite: CFD accounts are highly leveraged and as such provide facilities according to the customers risk appetite. There is a feature which provides guaranteed execution of the order at the market price which had been entered into the computer. This service is at a premium since it risked your downside. On the other hand there is a standard service where transaction costs are much lower. It is in an investor's best interest to understand these options and to pick what he/she wants. Many investors have lost a lot of hard-earned money to the simple ignorance of these facilities.

Understand the Bid Offer spread: CFD trading is a kind of derivatives contract. Such trading generally happens off the market and requires the investor to part with a bid-offer spread. Alternatively some big market makers allow the customers to place their order at the market price without any spread. This makes it identical to trading on the exchange albeit with a leverage.

Features: Many of these trading platforms allow advanced features for research, which is not available to the retail buyer. The buyer can understand the liquidity on both sides of the position before making a bit. This is generally a good indicator of the loss of value that may happen in case of a quick sale. The higher the liquidity, the lower the risk.

Security: Although it is not advisable to keep the funds in the trading account, but it is nonetheless safe. Most of these accounts are held in possession of a trust, which makes sure that the money is safe and provides risk mitigating mechanisms equivalent to, if not better than the market itself.

CFD trading helps you leverage your positions at rock-bottom transaction costs. The famous investor Warren Buffet is also famous for his apprehension of transaction costs. CFDs help solve a bit of the problem, by lowering them if not eliminating them completely.

About the Author

www.igmarkets.com.sg is a good resource to get more details about a CFD trading account and all about the risks and rewards involved with CFD as an instrument.

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