The Benefits & Risks of CFD Trading

Financeby Ariana Smith31 January 2019

CFD Trading

Online trading is one of the most popular forms of trading in the world now, with many online trading platforms offering users the chance to trade different instruments according to their own preferences and convenience. Among the several existing trading methods, however, CFD Trading or Contracts for Difference stands out as one of the most effective ways to earn a fortune. With millions of users already heavily into CFD trading on a global level, CFD trading has become a competitive place and is no place for novice traders with a little or no experience. Thus, despite its popularity, there is a significant portion of online traders who are still unaware of the fundamentals behind CFD trading. Certainly, CFD trading has a lot of benefits if done correctly, but can be disastrous for traders who aren’t that well informed about the subject.

Pros of CFD Trading:

CFD trading can be defined as an agreement between two individuals to exchange the difference price between the opening and the closing position of a contract. As mentioned before, traders who are successful have can amass a fortune within a short period of time. CFD Trading has some notable advantages, which are explained in brief below.

1. Profit Generation:

Unlike other forms of trading, CFD trading can generate profit irrespective of the market’s rise or fall. Knowledgeable traders with the help of tools and indicators who can make a correct prediction about the rise or fall of a commodity’s price. The higher the market moves in the chosen direction; the more potential profit can be earned.

If you are someone that is new to the game, you will need guidance and direction from leading experts in this domain. By working with Australia best CFD broker, you will be able to maximize your returns, make great investing decisions and learn how the markets operate in a dynamic fashion. You are not going to get it right at the very start as a novice. You need to work with experts that can help you understand the ecosystem.

2. Accessibility:

Because of CFD trading and Online trading platforms, traders have access to trading with gold, silver, different currencies, other precious metals etc., eliminating geographical limitations among other things. Traders can gain awareness and knowledge about trading different commodities, through which they can diversify their existing CFD portfolio.

3. Lot Sizes:

Unlike other trading methods, CFD trading allows flexible lot sizes. Traders have the freedom to buy the required number of units that he/she is comfortable with. It thus allows much more flexibility to plan strategies and make the maximum out of trades.

4. Margin Trading:

CFD trading has a very low margin requirement, allowing traders the chance to generate high returns from a very small initial capital.

5. No Physical Commodity Involved:

Probably the biggest advantage of CFD trading is that it allows traders to trade and make profits without owning the underlying asset in question. This is because it deals with price predictions and serves as an alternative to future contracts. This is why it is popular among both long as well as short term investors.

Cons of CFD Trading:

CFD Trading involves high leveraged products, and without a sound strategy and game plan in mind, traders can experience significant losses if they are not careful. Some of the disadvantages of CFD trading are given below.

1. Trading Without Research:

CFD trading is not a space for relying solely on luck and traders can pay dearly for it. Many traders make mistakes of increasing their stakes too quickly, without considering the past price trends, increasing the chances of incurring a huge unexpected loss.

2. Diversifying and Spreading Risk:

Being optimistic about every market and hoping that the value will rise is a common mistake made by most novice traders. It is always advised to diversify your existing portfolio to mitigate the risk. Trading in different markets and spreading out geographically is probably the best way to eliminate the chances of incurring losses by relying on one particular market.

3. Stops and Limits:

Another common mistake that most traders make is to react in an improper way immediately after any loss incurred. Often times this leads to worsening the situation. Thus, it is advised to take precautions to mitigate the losses with a stop loss order rather than just rebounding from the losses. However, positions must be excited when the target or stop limit is reached.

CFD Trading Brokers:

There are many online brokerage platforms offering CFD trading on a global level. IQ Option is an example of a reputed broker that operates across more than 150 countries and has several CFD options.

IQ Option allows CFD trading in stocks, forex, and cryptocurrencies:

  • CFD Stock Trading: Includes trading in stocks the world’s largest and reputed companies from large stock markets from around the world.
  • CFD Forex Trading: IQ Option provides CFD trading in the forex market on 10 major currency trading pairs from around the world. The most popular options include AUD/JPY, AUD/USD, EUR/AUD, EUR/NZD, EUR/USD, GBP/USD and NZD/USD.
  • CFD Cryptocurrency Trading: With the growing popularity of cryptocurrency trading, IQ Option now offers Cryptocurrency CFD trading as well. Cryptocurrency options include Bitcoin, Ethereum CFD trading along with some other cryptocurrencies.

CFD trading is a profitable way of generating profits if done right but can be detrimental to a trader if mistakes are committed. Choosing a good CFD broker will help you better understand the market. Reputed platforms such as IQ Option provides important tools as well as educational materials which can aid the trader in making well-informed decisions. For more information about IQ Option, you can check, which offers details related to the free demo account, minimum deposit amount and minimum trade amount.

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Ariana Smith

Ariana Smith is a freelancer content writer and enthusiastic blogger. She is a regular contributor at The Daily Notes.

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