Why Trade CFD’s
CFDs (Contracts for Difference) allow traders to speculate on the price movements of various financial assets such as currency pairs, stocks, indices, commodities, and even cryptocurrencies. CFD traders seek to benefit from changing prices without owning the underlying financial asset. As well, CFDs are traded without such intricacies as specified lot sizes and contract expiry dates. CFDs are standardised and regulated, and traders are in full control of when they open and close positions, plus they are guaranteed faster execution and there are virtually no liquidity concerns.
The ease of trading CFDs has attracted many investors, who also enjoy the low capital requirements, margin trading, best price execution, as well as other diverse trading opportunities. Despite the simpler process of trading, they still require the same strategies and analysis of traditional trading.
In the UK, CFDs are regulated by the FCA (Financial Conduct Authority), while ESMA (European Securities and Markets Authority) provides the framework within which EU members regulate the industry. The regulation ensures that only the best firms who meet the stringent requirements are able to offer brokerage services to retail and institutional traders.
CFD traders speculate on prices going up or down. For instance, if the price of an asset is expected to go up, a trader will buy a CFD and look to settle the price difference at a later time. The structure of CFDs ensures that traders can easily trade against their favourite financial assets as well as enjoy other benefits that the structure of CFDs offer.
Primarily, CFDs are highly leveraged investment products. They are mainly traded on margin, which means that traders are only required to stake a small percentage of the total trade position. This essentially means that even marginal price movements can yield big profits for traders.
It is for these reasons that CFDs have become a popular investment style among institutional traders and hedge funds, and for FR traders, they represent a low capital outlay method to trade financial assets for potentially big profits. There are numerous benefits for trading CFDs, with margin trading presenting a way to magnify potential profits in volatile market conditions. But, of course, leverage is a double-edged sword; because while you have the chance to boost potential profits,it also means that a wrong prediction will result in amplified losses. It is such risks that regulatory bodies have been conscious about and have continually devised ways to ensure that retail traders understand the risks involved, while at the same time compelling brokers to actively convey awarenes to their customers about the dangers of volatility and particularly leveraged trading. All in all, successful CFD trading is just a matter of managing risks and enhancing rewards.