Looking for a good way to gain some profit from the stock market? Contracts for Difference might be the best option for you. It offers a good number of advantages when it comes to stock ownership. Also, CFD trading can be utilized under traditional trading strategies and should magnify your gains after a short while all due to the gearing of available funds. In CFD, you will only have to pay 10% or even less on the actual value of the asset that you are trading. The rest of the funds are ‘on margin’. Additionally, if you are in a country where stamp duty is required for stock ownership, then you can save something since trading CFDs won’t require you to pay for stamp duty as you don’t own the actual underlying asset.
CFDs Are For Short-Term Trading
Contracts for Difference are particularly suited for short-term trading, meaning, trades that go on for a couple of minutes to a week or two. Not just because CFD is a margined product but also because of the exemption on stamp duty in Ireland and the United Kingdom. Because of this, you immediately saved 0.5% that you won’t gain if you buy the actual underlying asset. For this particular reason, CFD is really cost-effective and CFD brokers will only charge you as little as 0.1% for opening trade and another 0.1% when closing a trade.
Focus on Few Markets When Trading CFD
If you are thinking of trading short term in CFD, it is much better to put your focus on a few markets only until you fully understand the movements and you have conceptualized the right strategy to use. After a while, you will come up with a better strategy and you can start to widen your market. Trading with a trend is also a good strategy to start with. Using CFD, it’s possible that you can easily double your money with the use of this technique.
But one thing about using CFD is the interest being charged to you for keeping a position open overnight or even for a much longer time. CFD, unlike other similar derivatives like options and futures, don’t set an expiration date. In case of holding a winning position, you won’t fear that your positions will be closed. As you are on your winning streak, your account continues to get credited every day as long as you have ‘marking to market’ a process in which there is an increase in the value of your position.
Reminder: Always Utilize CFDs Responsibly
Large leverage also comes with great responsibility. Therefore, you need to see to it that you don’t suffer great losses, something that you cannot take. CFD trading can result in getting a ‘margin call’ if the market value falls. If this happens, you may need to send your broker more funds to continue with your position and might close it resulting in a loss on your side. As much as possible, trade only with the amount present in your account and leave the rest in case such a call arises.