When it comes to trading, it is best to be aware of the advantages and disadvantages it carries, before diving in. CFDs provide a leveraged trading field with immense prospects for profit. A proficient CFD trader can make piling profits by trading contracts! CFDs allow traders to participate without actually owning an asset; their derivative nature is one of their many amazing traits. However, the leveraged environment makes CFD trading a risky endeavor for inexperienced traders!
Here are the advantages and disadvantages of CFD trading:
Advantages of CFD Trading in 2018:
1) High Return Potential: CFDs predominantly work on leverages. With just a percentage of the complete value of a trade, you can speculate on financial commodities effortlessly. Since contracts are a derivative (allowing you to speculate without owning an asset), you save a huge amount of trading capital and make more room for returns. The combination of leverages along with this makes contracts a stellar genre of trading!
2) Trade Long or Short: One of the best features of CFDs is the ability to profit even from falling market prices. Typically a falling commodity ends in a losing trade; but in contracts, you can speculate both ways! Since you don’t own the asset, its downfall also becomes a profitable opportunity.
3) Trading Conveniently: CFDs cover a plethora of commodities – gold, currencies, oil, indices, etc. You can trade on any of these with a single account! Being a contracts trader, you can house immensely diverse trades
1) Risky with a Chance of Losses: Margin trading is all fun and games till the tables turn and instead of profits, your losses are magnified! Leveraging is a double-edged sword that needs the experience to handle. Losing a leveraged trade will lead to tumbling losses.
2) Potential Risk of Over-Trading: An underlying disadvantage – having leverages and overall low capital requirements, can brew the recipe for overtrading in no time! Several traders lose control over the leverage provided and invest more than needed, ultimately ending up in a loss.
3) Inflexible Collaterals: Margin amounts in CFD are set by the broker, and are very rigid. So your trading plan will have to revolve around this. What’s even worse, your provider might change the levels mid-way and you will have to shell out more money to prevent exiting the trade!
CFD trading is no cake-walk, and those who expertise in it today have traveled a long way. Though there are immense profits to be made, one bad move and the leverage will consume you!