According to one of the top financial analysts at Olsson Capital, CFD is a common term within the financial markets and you will come across it every time you research about the financial markets. CFD is an acronym of Contract for Difference, which is a form of derivative trading. CFD trading is a pervasive form of trading and one of the fastest growing industries after Forex.
What is the difference between CFDs Trading and Forex trading?
There are several similarities between Forex and CFDs like the fact that both involve similar types of trade executing process and both are traded on similar trading platforms with market pricing and charts being similar. Also, when trading either Forex or CFDs, you do not own the underlying asset. You only speculate how the exchange rates will change over time.
Forex has become a very common term among traders to the extent that they tend to think that every other trading is just Forex. No! Forex typically involves currencies from different countries and economic regions while CFDs involve trading other forms of contracts like indices, metals and energy. When trading CFDs, you only speculate how the prices of these securities will change in the future as a trader.
The most significant difference between Forex and CFDs trading it the factors that influence the two markets. The forex markets are affected by events around the world like political changes and rate of employment. On the other hand, the CFDs markets are influenced by the demand and supply within the business sector since it involves real goods which are typically bought and sold across business entities across the world.
What are the benefits of trading CFDs?
With all said, what is the benefit of trading CFDs in relation to other financial trading ventures? Why should you opt to trade CFDs as a financial trader?
One, almost every financial broker offers CFDs trading securities and especially those brokers who provide Forex trading since the CFDs utilise the same trading platform as that of Forex and the process of executing trades is also similar to that of used in trading Forex. The instruments involved in the CFDs trading are fast moving goods and therefore the CFDs financial markets are relatively volatile. This makes them a very lucrative market for traders since they have large daily ranges which translate to huge profits when the trader places a trade. The prices of the indices, metals and energies are known to change as fast as the exchange rates of currencies although relatively slower.
Also, when it comes to CFDs trading, there are no trading commissions involved unless trading Shares CFDs, which is Contract for Difference derived from stocks markets. For all the other forms of CFDs, the only charges are the spread. The spread is the difference between the selling and buying price. The buying price is normally higher than the market price to create the spread which is usually the profit of your broker.
Since when trading CFDs you do not own the underlying asset, you will not be charged any stamp duty. However, you will be charged capital gains tax from the profits you make when trading.
CFD trading is usually done over the counter meaning that it is done over the internet through trading platforms offered by financial market brokers. Therefore, you can trade CFDs from the comfort of your home since the only thing that you require is a good internet connection and a good computer.
There are no academic qualifications required to become a CFDs trader. The only thing that you will have to do is to research and learn about how to trade CFDs, and you can do that online. There are lots of materials on the internet to help you sharpen your trading skills. In addition, most brokers offer demo trading accounts where trader practice trading before going to trade with their real hard earned saving.
CFD trading is one of the best ways of earning an extra coin in addition to what you get paid in your formal employment. And it doesn’t matter how busy you are because you can use automated trading strategies or even open a managed account to invest in the CFDs trading.