Benefits of CFD trading
When you buy or sell through CFDs, you agree to exchange the difference in the price of the asset from the time you open your position to the time you close it. Below we will review some of the main advantages of CFD trading - including leverage, short selling and hedging - and explain why these advantages are popular with traders.
Why trade CFDs?
CFD trading is a form of derivatives trading - which means that the price you are trading comes from the underlying market, not the underlying market itself. This type of trading is popular because it enables traders to:
Increase capital through leverage
Buying and Selling Trade in a broadly traded market similar to the main market Hedging Portfolio Stocks Using Direct Market Access (DMA) If you are new to CFD trading, get started with our introduction to CFD trading and how it works.
Positive effect
CFDs allow you to increase your investment capital because you only need to deposit a fraction of the total value of the trade to open a position. The deposit that you have to make is called margin.
The amount you need to deposit depends on the size of your position and the margin factor in the market you choose. So if BT has a margin factor of 20%, a position of £1,000 would require a deposit of only £200.
sales
Since CFD trading involves an agreement to exchange the difference between the opening and closing prices of your trades, it is more flexible than other forms of trading.
This allows you to trade both bearish and bullish markets. When trading CFDs on the trading platform, you will see two prices listed: the bid price and the ask price. If you think the market price will go up, you trade at the bid price, and if you think the market price will go down, you trade at the sell price.
Trade in a wide market
You can use CFDs to trade over 17,000 markets including stocks, indices, commodities, forex, options and more. You do not need to visit several different platforms to trade in different markets. Log in and everything is available wherever you are - you can trade from your web browser, phone or tablet.
You can also trade in some markets outside of trading hours to take advantage of the company's announcements. Just keep in mind that the market opening price may differ from the price during the extended period.
Similarities with major markets
CFDs are formulated to simulate the trading of the underlying market fairly accurately. For example, buying an Apple stock CFD is the same as buying 1 Apple stock - if you want to buy the equivalent of 2,000 Apple stock, you'd buy 2,000 Apple stock CFDs. At the same time, buying or selling forex CFDs is equivalent to selling an equivalent amount of the listed currency and buying a certain amount of the base currency.
So, buying 1 GBP/USD CFD will give you the same exposure as buying 100,000 GBP in USD.
So, if you are already experienced in non-leveraged markets, you may immediately notice that CFDs are more familiar than other forms of leveraged trading.