For the past few years, more and more traders are switching to CFD, and there’s a reason for that. As you trade CFDs, you’ll be able to take a position on the change in the value of the underlying asset over a period of time, but that’s not all.
Allow us to present some of the reasons for you to love CFDs.
- Full Exposure
Even though there isn’t any physical purchase or ownership of the underlying asset involved when you sign up for a CFD contract, the trader would still enjoy a full exposure to the market that he’s trading with. This is because CFDs are considered to be a form of derivative product that mirrors the pricing and movement of the underlying instrument.
- Long or Short-Term Trading Can Be Done
One of the great features that can be enjoyed in CFDs is that you’re allowed to trade in both the long and short side of the market depending on your preference. For short-term trading, a trader could enjoy profits from the falling asset prices directly– this can be a little difficult without the use of derivative products like CFD.
- Margin Trading
Due to the fact that CFS are traded on margin, it gives the trader the ability to trade a wide range of products with an initial deposit that’s only a portion of its total value. This only implies that the rate of return that could be enjoyed in CFD trading is higher than what can be enjoyed in traditional cash trading.
- Range of Markets to Choose From
Most CFD trading companies, such as CMC Markets, offers a wide range of markets for CFD. This includes commodities, shares, forex, opinions, and many more.
- Financial Settlement of Expiring CFDs
Although CFDs give exposure to the underlying asset, it still doesn’t offer a full ownership of it. Basically, CFD contracts are usually settled in cash when the position is closed or when the CFD expires. This takes away the worries related to the delivery of the underlying asset.
- It’s Quite Simple
As compared to options trading, CFD trading is simpler and very easy to understand. All that is needed is to have a sound knowledge of current events, as well as the understanding the emotion of the trading market. Through this, you’ll be able to enjoy good profits with CFD.
- Stamp Duty Exemption
With CFD trading, what makes it different from traditional trading is that there isn’t any actual purchasing or selling of shares. Likewise, CFD traders are also exempted from stamp duty most of the time. This makes CFD trading applicable for short-term and medium markets.
- Promotes Discipline in Trading
Considering the fact that CFDs are traded on margins, it would be a huge mistake to ignore losing positions. For that reason, a lot of traders fail to make money because they weren’t able to cut losses as they are still hopeful that there would be a turnaround just in case. With CFD trading, you’d develop an attitude that can help you accept that there would be times where you’d going to lose and the best response would be to cut losses.
- No Financing Charges to Worry About
For those who use CFD for intraday trading, rest assured that there aren’t any financing charges related to it because you wouldn’t be holding a position overnight. Likewise, this also lessens the risk of movement in stocks that are brought by global markets, as well as overnight news related to the trader’s stocks.
- Tax Benefits to Enjoy
In case one of your physical shares is making losses, it’s still possible to sell it for tax purposes, as long as it’s under CFD.
- Offset Against Capital Gains
CFD traders are entitled for capital gain taxes. Thus, the worse case scenario that could happen during CFD trading can easily be fixed right away. That said, you can take a CFD position and be able to accomplish the gains in the share even though you’re actually selling the share for tax reasons.
- Ideal for Short-term Trading
Since you’re trading CFDs on margin, as a trader, you can potentially earn on the short-term market volatility without the need to have any forms of large investment.
- 24-hour Trading
Most CFD companies offer round-the-clock trading, allowing the traders to open and close positions even when the market is closed.
- Lesser Commission Charges
The commission charges on CFD is lesser as compared to the cost of traditional trading. That means you’ll benefit from small movements.
- No Settlement Period
In CFD trading, there aren’t any settlement period. That means you can buy or sell positions instantly.