The history of Trading CFD can attest that CFD is a financial instrument that is worth investing in if you are ready to devote yourself to its trading conditions and risks. From being a financial material used in retail trading back into the latter part of 1990s up to its expansion abroad in July 2002, CFDs are now recognized in 26 countries all around the world. In today’s discussion, we aim to talk about the main truths about the CFD trade with a thought that these facts would aid in your research and formulation of necessary trading strategies involving such material.
Reality Number 1: CFDs come in many forms.
Since most Trading platforms for CFDs refer to the instrument as a flexible merchandise, it comes in respective forms that are designed for a particular trade. Samples for these forms include share or equity CFDs, Index CFDs, Commodity CFDs,Treasury CFDs, Sector CFDs and Inflation CFDs.
Reality Number 2: There are CFD regulating bodies in countries that recognize the product
In Europe, the providers that are located within the continent are allowed to offer CFDs to countries that belong to the MiFID. At the same time, several European financial regulators revised their trading rules after a warning indicating that there was a great amount of traders who were complaining about their significant losses in the trade. The Cyprus Securities and Exchange Commission and UK Financial Conduct Authority, for example, limited the leverage to a maximum of 50:1.
Reality Number 3: CFDs are traded because of its advantages
Aside from increased profit, trading CFD is also a way to experience a diverse trading experience. A particular trading session involves going in or out the market on a particular time based on the market fluctuation rates. It is also widely recognized in many markets across the continent. Above all, it offers no stamp duties for UK based traders.
Reality Number 4: The right CFD trading platform can make you feel at ease despite trading risks.
Some legit CFD providers offer additional features that help a particular trader feel secured once they decide to enter the trade. Among the notable features involve offering a demo account for practice trading, user friendly apps (this include calculators and charts for analysis), 24/7 mobile assistance, low minimum margin and automatic stop loss orders for each trading session.
Reality Number 5: CFD trading is a high risk trade
The main reason behind this reality is the idea that CFDs are leveraged merchandise. With leverage,this means that your profit can be multiplied a hundred times but once you lose your position, you will also lose as much as the much of your profit. Because of this, incoming traders are advised to carefully weigh its advantages versus the disadvantages before deciding to be involved with it.
Reality Number 6: Profit and Losses can be calculated
Calculating your possible profit and loss is possible if a trader understands how spreads work in the trade. One must keep in mind that buying rates are the rates that you assume if an asset’s value goes down the chart and selling rate is its opposite. Decide whether to trade up or down then peg your rates. Once your decision goes with the flow of values, you get an amount that is equal to the number of CFDs you traded multiplied by the distance that the market moves in your favour.
Conclusion:
The 6 major facts for CFDs therefore tell us that this trade is both a risky and convenient avenue to earn profit.
