What are CFD Trading Instruments
Definition of CFD Trading Instruments
Stocks, equities, commodities, forex, cryptocurrencies, and so on — any financial asset you can trade via CFD contracts is a trading instrument.
Different Types of CFD Trading Instruments
The best part of CFD trading is that you can trade a wide variety of instruments without owning them. A contract for difference only lets you speculate the change in the underlying asset’s price. So, what is it that you’re dealing with?
Well, it can be crypto, forex, stock, equities, and commodities, among others.
Diversification is key!
Benefits of CFD Trading Instruments
Access to a Wide Range of Financial Markets
Having multiple options is never a bad thing. And that’s because you can invest in various instruments. There is no need to stick to just one category (or even to CFD trading itself for that matter).
Diversification, both within and outside the CFD landscape, can help you minimize risks.
Leveraged Exposure to Various Assets
Another critical factor in CFD trading is leverage, which ranges between 2% and 20%. Leverage can help traders multiply their profits without owning underlying assets, but this also results in losses.
Risks and Considerations
Market Volatility and Price Fluctuations
As with all trades, CFDs also carry risks with low commissions. You’ll only have to deal with the spread (the difference between ask and bid prices) and overnight holding fees. Price fluctuations can upset your trade; leverage will multiply your losses.
Impact of Leverage and Margin Requirements
Traders get CFDs on margin since they don’t own the underlying asset. The margin can fall between 2% and 20%. It affords you leverage to trade, which will multiply your profits in the case of a winning trade and vice versa.
Popular CFD Trading Instruments
Stocks and Equities
You can trade stocks (i.e., AAPL) and equities without owning them.
Forex (Foreign Exchange) Pairs
If you’re sure about the performance of a forex pair like CAD-AUD, you can get CFDs for that, too.
Commodities (Gold, Oil, etc.)
CFDs likewise work for commodities like oil, gold, and metals.
Indices (S&P 500, FTSE 100, etc.)
For more consistent long-term returns, you can go for indices. The S&P 500, for instance, has consistently outperformed individual investors for years now!
Practical Tips for Trading CFD Instruments
Conducting Thorough Research and Analysis
Be sure to stay in the loop of the financial status of the company associated with your stocks and major international events. The more you know about what you’re getting into, the better!
Setting Realistic Trading Goals and Risk Management Plans
Be realistic about how much you want to achieve with your trade. Your most significant victory will never be as big as your greatest loss. Risk management and realistic expectations can help you bring your A-game. For the former, you’ll want to set up stop-loss orders.