5 Reasons Why You Should Invest In CFDs
When we talk about investing and making money in the financial markets, we often think only about forex markets, commodity markets or the stock markets. While there are no doubt that these conventional methods of trading are extremely popular and help in making people rich and wealthy, there are some constraints with these conventional trading avenues. These require investment of big money and therefore may not be suitable for beginners who would like to test the water.
Hence it might be not a bad idea to go in for various types of financial derivatives including CFDs. CFD stands for Contract For Differences and over the past few years, they are becoming quite popular. If one looks around the various reputed sources of information including the likes of CMC Markets they certainly will be able to come across the various reasons why it might make sense to go in for CFD instead of conventional forex commodities.
1. You Can Get Started With Small Amount
One of the biggest reasons as to why it makes sense to opt for CFD is because it is possible to get started with a small amount. Just by staking a small percentage of the overall value, it is possible to get into the thick and thin of the markets. This is not possible in conventional forex and commodity trading.
2. No Need For Stamp Duty
There are many people who get into CFD because it helps them to stay away from the requirements of stamp duty. When you buy and sell a share, the ownership moves from the seller to the buyer. When such change of ownership takes place, there is a need to pay stamp duty which could run into a few hundred or even a few thousand dollars depending upon the quantum of such transactions. However, this is not required as far as CFD is concerned. This is because CFD is all about taking positions and either squaring it off during the end of the trading period or carrying it forward to the next trading session.
3. It Allows The Traders To Go Short And Long
When you settle for Contract For Differences it is possible for you to go both long and short. In other words if you feel that you have a better chance of making bigger money than what you have initially estimated, it is possible for you to keep the positions open and carry it forward to the next day or the next trading session. On the other end of the spectrum, if you feel that if you are running a risk and the markets are turbulent and choppy, you can cut down on your losses and decide to go short and come out by squaring the accounts. This may not be possible in the conventional buying and selling of commodities, currencies, stocks and shares.
4. The Power Of Leveraging
Not many people might be aware of the exact meaning and scope of leverage. Put in plain and simple words, it is about borrowing money for trading. Though it certainly comes with some amount of risk, if one is able to manage it properly it can help a lot in helping you to get the best return on investments. The biggest advantage is that your risk is restricted only to the amount that you decide to borrow or leverage. It allows the investors to keep a part of the cash elsewhere in other assets which could give safe and fixed returns. Hence it allows the traders to have two different sources of income using the same amount of capital.
5. Lower Commission Payouts
Whenever you trade in currencies, commodities or stocks and shares, you have to essentially take the help and assistance of brokers. You have to pay brokerage to them which are quite a bit. Additionally there also could be other expenses in the form of access fees and clearance fees. Those who start with a small amount of capital, it certainly could hurt quite a bit. Hence when they opt for CFDs the commission payable is quite small and this could make a big difference in their profits, especially for those who are testing the waters for the first time around.
Hence at the end of the day, there is no doubt that there are obviously a number of benefits as far as CFD trading is concerned.