CFDs and Futures trading are both popular trading venues, however, CFDs allow for higher leverage usage.
Online PR News – 03-June-2011 – – "The most common form of trading today is CFDs. CFD trading has become an extremely popular instrument as it offers investors means to make more money in a short time," mentioned CFDSpy representative Paul Fraiser. Most trading is done off the exchange, which means an investor does not have to consistently visit the exchange when trading in CFDs. Trading is mostly done though brokers which unlike futures trading provides more leverage for trading.
The term CFD stands for contract for difference. It means that the positions are basically contracts with a broker and not acquiring any assets. CFDs do not provide any asset to the investor, it only provides a contract with the broker. The CFD broker has the leverage to buy or sell any asset at any future time. The contract is open by buying a stock at a given rate, when the position is favorable for the stock and it is expected to rise, and to close the CFD at a higher price. The difference of the assets buying price and lock price is the profit earned. There is no fixed time of closing this locking instrument. It can be closed any time. Basically, it's the broker who keeps track of the trading and the underlying market and proceeds accordingly.
Paul continues, "Both trading avenues offer the ability to profit without actually investing in the underlying asset which therefore allows for the natural leverage to increase the potential gains from positive movements in the market." An investor will find that there are many benefits of cfd trading vs futures. It allows an investor to trade on margins that would let him reap a lot of profit, unlike futures trading which allows low margins. It also allows starting with a low capital, making investment, and earning a large profit. The traders use CFDs to take advantage of short-term fluctuation in the market. This fluctuation is mostly followed only for a few days or weeks. The prediction by the broker is done only for a short-time.
The CFD trading position lets the trader to capitalize on the rise in prices on a leveraged basis, naturally increasing the earning potential of the transaction and providing a cleaner, more cost effective way of profiting from the rise in prices. However, the need to maintain and fund the margin requirements for leverage is something which makes CFDs a less attractive choice for new investors. Irrespective of a few disadvantages of CFD trading for beginners CFDs are now involved in few of the world's largest institutional investment portfolios.
Cfdspy.com is one of the web's leading resources for CFD trading, spread betting and share dealing, compiling volumes of information and advice for trading successfully. With in-depth broker reviews and comparisons alongside market tips from experienced, successful traders, Cfdspy.com is dedicated to helping traders improve their fortunes when trading the CFD markets.
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