Advantages of CFDs

Abbreviated as CFD, contract for difference is a popular kind of derivative trading which enables one to speculate on both the falling and rising prices of global financial markets that are fast-moving as well as other financial instruments such as commodities, shares, treasuries, currencies and indices. 

In much simpler terms, cfds financial instrument that can be traded which mirror the movements of the assets involved. They allow traders to realize both profits and losses when the assets involve move in regards to the position taken. However, the actual assets involved in the trade are never owned. Therefore, CFDs are essentially contracts between brokers and clients.

We all know that in every business there are some positives and negatives. Here are some of the reasons why CFDs in Australia are popular with traders.

Leverage

Since you only have to deposit a percentage of the full value of your trade in order to open a position, this enables you to go further with your investment capital. Margin is the deposit that you are required to put down.

There are two things that will determine how much you’ll need to deposit, these are: the margin factor for the market you have chosen and the size of your position. It is also crucial to remember that the total loss or profit you incur will be based on the full size of your position instead of your deposit.

You can Trade in Both Rising and Falling Markets

The beauty about CFD trading in Australia as well as other parts of the world is that, you can trade on the price of a product going up as well as down. As a matter of fact, a good number of investors prefer using CFDs as a means of hedging the portfolios they have in existence through short-term periods of volatility.

Therefore, if you have reasons to believe that your current portfolio is going to have a loss in value, short selling through the utilization of CFDs is your best chance of offsetting your portfolio value losses.

Offers You Direct Market Access

Also known as DMA, direct market access allows you to not only see but also interact with the order books of forex providers and stock exchanges. Therefore, instead of trading at the buying and selling price being offered at the market, with cfds you can see all the offer prices and available bids at all times as well as trade at the market price of your choosing.

It is important to know that when you decide to trade using the direct market access the trades are charged via commission. Even though this might be a powerful tool, you don’t have any guarantees as to whether you will find better prices. Therefore it is best left for more seasoned traders.

There is no Stamp Duty

When it comes to a CFD trade, you don’t have to pay for stamp duty, unlike the traditional method of share dealing. The main reason for this is because you don’t have any physical ownership of the underlying asset being traded.

However, you should keep in mind that tax treatment not only depend on individual circumstances but also have the potential of changing.

You Get to Trade in a Wide Range of Markets

With CFDs, you ca trade in more than 15,000 markets which include cryptocurrencies, shares, commodities, forex, indices and many more. In addition, to trade in different Australian markets, you don’t have to get access to multiple platforms that are different. This is because everything is available anytime you need under ne login.

In this regard, you can have the opportunity of even trading some markets after trading hours if you want to make the most out of company announcements. However, always keep in mind that the prices being offered when the market is opening may differ from when it trades after hours.

You can reap most of the benefits offered by CFDs if you take your time to learn more about it and how it is influences trading.