One of the big benefits of forex trading is the multiple avenues to make quick and clean money. One of these avenues is CFD trading, a trading platform almost similar to binary options but comes with even bigger advantages. Here are some important keynotes to have in mind while venturing into the CFD market.
CFD is referred to Contract for Difference in full. This means that as a trader, you will enter into a mutual trading contract with another party. CFD profits will be earned by getting the difference between the initial value prices from the final trading price, then multiplying this with the amount of CFDs bought.
For example, if you purchase 100 CFD gold on assets bought at 1000 then sold at 1500, the difference is 500 which is multiplied by the 100 CFDs bought. Your net profit will thus be 50,000 by the end of the trading window. And this is just a tip of the iceberg.
CFD Trading vs. Binary Options
Putting these two trading platforms side by side, the approach is pretty much the same. The trader doesn’t own any assets but makes their money via speculation. The only difference, which also counts as an advantage for CFD, is that CFD doesn’t have expiry trading periods like binary options.
The Advantages of CFD
One immediate advantage is that you have no ties to asset ownership. You only need to get into a trading contract that outlines the number of CFDs you purchase. You have the freedom to purchase the lowest CFDs to the highest (100%) to increase your spread. The choice is all yours.
Then there is the advantage of being able to manage the risk of your spread. This is a vital skill to have since there is high risk involved in the craft (as it is with all other forms of currency or stock trading). Nonetheless, you can cushion your losses by applying a stop loss to your position to avoid incurring a further loss. Additionally, you can also decide to go short on the number of CFD gold to purchase if you perceive the potential for price falls in the trade assets.
Flexibility is another benefit CFD traders enjoy on a daily basis. You have the freedom to enter and exit the currency market whenever you want. And because there is no expiry period for this market, you can enter the market as many times as you want and increase the profits you make before cashing out.
Besides flexibility, there is also the benefit of trading in more than one avenue to make money. As you know, most of the forex trading platforms like binary options only rely on the currency market. But for CFD trading, you can trade in other assets like indices, stocks, bonds or commodities besides the currency market.
What else should you know?
CFD trading is a very lucrative venture and has made millionaires out of the average Joe. You also stand a chance of becoming a prime CFD trader, but the trick is in learning the ropes and learning them fast. Here are some additional tips to have in mind.
First, you need a CFD trading broker, or brokerage company like CMC Markets, to open a deposit account with. Brokers are vital middlemen to make use of, especially in the early stages of your trading. They understand how the whole trading process works and will impart this knowledge to you. You also get to learn all the jargon used and how to protect your investments and grow your portfolio. Many newbies in the game appear quite professional, and it’s all thanks to a broker working behind the scenes.