What Are the Advantages of CFDs?
Speculate the Asset’s Prices in Falling and Rising Markets
Generally, these contracts are based on underlying assets. Traders can’t own these underlying assets, but they can speculate their price movements. This means that traders can make cash in both bullish and bearish markets.
When the market is rising you can go long and vice versa. You can purchase a CFD and then sell it on a later day when its price has increased.
No Stamp Duty
Since you don’t have to own the assets to trade CFDs, you will never have to pay stamp duty. This means more profits for traders. But this will depend on circumstances and can change in the future.
Higher Leverage
One of the significant advantages of trading CFDs is trading on margins, which grants you leverage. You can trade various assets without paying the full amount of the positions.
The standard leverage for CFDs was initially a 2% maintenance margin (50:1). But it has now increased to 3% and can even go as high as 50% giving you a leverage of 2:1. These lower margin requirements help you free up more cash.
Global Market Access
Most CFD brokers grant us access to several global markets that would be hard to access with traditional trading. You can trade commodities like oil, silver, gold, and other indices without purchasing the assets.
No Borrowing Stock or Shorting Rules
Most markets have some unique rules that prohibit traders from shorting traders. Traders must borrow the assets before going short. Some even have different margin requirements for opening long and short traders, but that’s not the case with CFDs.
You can short CFD contracts any time you plan on trading since you don’t have to own these assets.
Professional Execution of Trades Free of Charge
CFD brokers offer the same services as traditional asset brokers, such as limits, contingent, and stop orders. Some even offer guaranteed stops for free and make cash from the spread. All brokers charge a fee every time a trader opens a position.
When purchasing an asset, traders pay the asking price and a bid price when shorting a position. Depending on the market’s volatility, the spread might be huge or small.
No Day Trading Requirement
Most markets require day traders to have a specific capital or limit the number of trades to day trade. Fortunately, this does not apply to CFD accounts. CFD day traders can trade as many times as they want every day.