Contracts For Difference (CFDs) are increasingly being seen bytraders and investors as a cost effective alternative to traditionalshares trading.
CFD trading has numerous advantages over traditional shares trading
CFDs aren’t as complicated as they might sound
A CFD is an agreement to exchange the difference in value of a shareat the time it is opened and at the time at which it is closed.
Your profit or loss is determined by the difference between the priceyou buy at to the price you sell at, multiplied by the amount ofcontracts you hold of course. Simply put, if you think a company’sshare price is going to rise, you ‘buy’ or if you think it islikely to fall you ‘sell’.
The degree to which you are correct in your CFD trading affects howmuch you make or lose.
Low transaction costs and leverage
The majority of CFD trading is done online via sophisticated tradingplatforms, and that makes trade execution very simple and there areno handling or broker fees to pay.
When you trade CFDs, you trade on margin, that is, instead of payingthe full value of the underlying financial instrument you pay a smallinitial deposit which can allow you gearing, or leverage, of up to 20times your initial outlay. Your profits can be magnified.
It’s important for you to find a CFD provider who offers DirectMarket Access, as then you’ll benefit from dealing at the marketprice and not the price governed by the actual CFD provider.
You will also have to pay a nominal rate of commission, typicallyaround 0.10%.
Go long or short.
With share CFD trading you can take advantage of your knowledge ofthe financial stock markets without having to worry about the actualunderlying performance of a company.
If you think a share price is likely to rise or fall then thepotential for profit, or loss, is still the same.
Many different markets to choose from
CFD providers offer a huge array of markets to trade on from sharesto forex to stock indices to commodities. Another benefit is thatmost CFD providers allow you to trade 24-hours a day.
It's always important to manage your risk sensibly.
CFD providers should provide you with a range of tools to do this,including trailing and guaranteed stops. Research specialistInvestment Trends carried out extensive market research recently andthen resulted in IG Markets being named as the largest provider ofCFDs in Australia.
Also, IG Markets was judged Best CFD Provider for 2010 in Moneymagazine’s Best of the Best award. Catering for beginners andexperienced alike, IG Market offers free education, expert analysisand Direct Market Access.
Remember that CFDs are a leveraged product and can result in lossesthat exceed your initial deposit. CFD Trading may not be suitable foreveryone, so please ensure that you fully understand the risksinvolved.