Before we try to find out whether it is worth going in for CFD or Contract for Difference, it would be interesting to know something more about it. What exactly is CFD and why it is considered to be one of the most exciting trading options which could help even newcomers to make money? From an ordinary man’s perspective CFD is nothing but a tool which helps any person to have an opportunity to deal with scores of financial products and across many markets. The best things is that it helps anybody to get in and there is no need for investing thousands of dollars as it the case with investments in forex markets, commodity markets and even stock markets.
There are many sources of information regarding the various advantages of being in CFD trading. A look at websites like CMC Markets would most certainly give you an insight into the various pros and cons associated with this form of trading. We will try and identify a few such proven and time-tested reasons why it there is money to be made from CFD trading without exposing oneself to the risk associated with commodity, forex and stock trading.
1. Commercially Viable
One of the main reasons why many traders find CFD very suitable is because it is commercially viable. While low investment is the biggest advantage, there is no need to pay any stamp duty. Further the commission payable on shares is much lower because it is based on the spread in such markets. It allows a person to learn the intricacies of various forms of financial trading without having to stick their neck out with large investments. It also gives the traders to take full advantage of both rising and falling markets. This is one single trading product which allows traders to take positions on indices, forex, commodities, shares and much more. It can also be used to make money betting for various sporting and other events. Hence when the above are factored it is without any doubt commercially viable.
2. It Helps A Step By Step Learning Experience
The fact that it has very low threshold investment limits helps new entrants to learn CFD trading step by step. It teaches them how to avoid trading by impulse because the product is designed in that way. It helps traders to get started with small amounts and hence impulsive trading can be avoided at all costs.
3. It Teaches You When To Enter And When To Exit A Trade
Being in this market for a few months will certainly teach you how to get into a trading at the right moment. Additionally it also will teach you how to get out of it whenever the opportune moment arises. This certainly will go a long way in helping protect capital at the exit level. It affords enough avenues and methods by which novices and new traders of CFD can learn the tricks of the trade.
4. Easy Liquidity
Another big reason why it makes sense to go in for CFD trading is because it offers much better liquidity. Since it mirrors what exactly is happening to the underlying market, it allows even small traders to access the liquidity which normally is available only to the big traders. Further since CFDs are a highly leveraged financial product it requires the traders to deposit only a small percentage of the total value of the entire trading. Typically the percentage of deposits never exceeds 10%.
5. It Has A Number Of Tax Advantages
There are a number of avenues and methods by which it is possible to minimize tax outgo when one invests in CFD products. This is because the interest payments are tax example in the normal circumstances. Capital gain tax amounts can also be easily taken care of if the entire CFD trading sessions are planned properly. In other words it helps people to carefully manage the capital gains tax.
6. Ease Of Operation And Transparency
Finally transparency and ease of operation and execution are the hallmarks of CFD products. It is almost the same as trading with shares and the concept of one CFD equaling one share makes it quite clear and transparent avoiding confusion. Therefore when the above factors are taken into account, there are reasons to believe that opting for CFD trading is without any doubt a great decision.