Online CFD (contracts for difference) enable investors to earn profits because of changes taking place in the prices of stocks, shares, forex and other financial instruments. Though, relatively introduced late, online CFD trading is gaining popularity by the day for a number of advantages it offers to investors. In fact, many investors find online CFD trading superior to usual dealing of stocks.
Here’s an example. You could buy CFD for a stock valued at $6.00 and if its price rises to $6.60, you would have made a profit because of its changed price. In case you had bought 100 pieces of this CFD while trading over at XFR Financial Ltd, you would have earned profit of $60.
These are the major reasons that make online CFD trading increasingly popular.
- Margin For Online CFD Trading
The most important factor in favor of CFD trading is that the investors are required to make small margin payment, rather than the total price of stock they wish to buy. For example, if you wanted to buy 100 units of any XYZ stock priced at $10 each, you would need to pay $1,000 if you were to buy the traditional way. As a CFD trader, for buying the same amount of stock you would need to pay small margin, which could be just 10% of total cost, meaning just $100.
So, small margin is a great motivating factor for most investors. However, this is not risk free. In case the price of stock comes down, you could end up paying more than the amount you invested. Should that happen, the broker would make a “margin call”, asking you to pay additional amount. You could be in great trouble if you can’t pay that.
- Liquidity/Short Selling
CFDs allows you to short sell and thus book profit when the market is falling. It means you can benefit from falling markets too. Rather than buying at $80, and selling it for $100 to get a profit of $20/share, a short put option works the opposite way. You may short sell your stock at $ 90 and if the stock price falls to $60, you can buy back to lock-in profit of $30.
- Taxation and cost efficiency
The other benefit of CFD trading comes in the form of taxation and cost efficiency with XFR Financial Ltd. Since there is no physical trading of instruments, meaning stocks don’t really exchange hands, no stamp duties are payable in most countries. There is also the possibility of a trader requiring paying lower tax.
Moreover, the fee that CFD brokers charge is considerable less than what you are required to pay on trading through traditional share brokers. As a matter of fact a number of online CFD brokers do not charge any fee. This reduces your expense, allowing you to make additional investments.
Stop loss option
This option helps reducing trading time while ensuring elimination of emotion of exiting a trade anytime you would like to.
Convenience with XFR Financial Ltd
A very helpful feature with XFR Financial Ltd is that you can place your order in the evening. You can place your order a night before with many CFD providers. You need not be on your computer or talk to your broker during the day after you have placed order with stop loss option.