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What Are The Benefits Of CFD Trading?

by: crichton66c on Date: Tue, 9 Nov 2010 Time: 12:34 AM

CFD trading has completely changed the face of financial instruments market. Its growth has been unprecedented. People can now trade in shares without the need for taking loans to buy them or pay huge fees to all service stock brokers. Some biggest advantages that CFD trading offers over conventional share dealing include the following:

*Trading in CFDs does not require you to put up the entire capital requirement to take a certain position. All you need to deposit is 1-20 percent of the total contract value. This allows you to leverage more money than you actually have. This increases your possibility of a return many times. This is referred to as "gearing" and helps people with limited funds to invest.
*CFD trading is relatively easy to understand and trade as they follow the pattern of shares (as compared to the options and warrants which take time to get your head around). Also, you can benefit from prices moving in any direction, basically any kind of market condition - upward or downward in a relatively short time frame. So, any market is a good for this derivative.
*You can open a CFD account, take a position, and make money by the end of the day with some of the lowest transaction costs. Stop-loss and contingent orders can be placed with relative ease. It is something a salaried person can do on the side without compromising their real job.
*CFD platforms allow online account reporting and daily statements. The same account can be used to access stocks, commodities, as well as indexes.
*There is no expiry date to a CFD, therefore you can keep your position open for as long as you want. All this time you get interest as well as dividend that you would get on an actual share holding. But you would not get franking credits, unfortunately.
*It is easy to buy or sell a CFD whenever you feel the need to, unlike margin lending where it is nearly impossible.
*There is no fixed contract size - you can deal in as small or as large quantities as you wish, depending on your investment needs.
*There is no applicable stamp duty at least in the UK which takes away one of the biggest costs. But, of course, you will have to pay taxes on all gains made.

A CFD is a great short-term investment tool, provided you have the right guidance or knowledge of the market. It is not a good investment opportunity for the people looking for a long-term approach as it costs more then. It may be a good idea to enlist the support of a company that specializes in CFDs to advise you in the beginning. A good portfolio needs a mix of various instruments purchased in accordance with investment objectives as well as market realities.

About the Author

Visit www.igmarkets.co.nz for FX or CFD trading with special focus on different kinds of financial derivates including CFD.

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