CFD or rather known as contract for difference is the latest trend in the finance market. CFD trading takes place between two parties – the buyer and the seller. Usually the deal in CFDtrading is that the buyer buys the share from the seller in an agreement that the seller will pay the difference amount of the current value and the value at the time of the contract. Thus based on the share market the loss or gain of the shares depends on the time the buyer buys the shares from the seller. There are pros and cons in every type of trading, yet the magic and the charm of this type of business still lures people and they love to play this game of luck!
Though some people consider trading as a chance of luck, there are others who see it as serious business. They study in and out regarding the seller and the investment they are about to make. This gives them a clear picture whether the share investment will give them profit or not. For better understanding let us take an example of a buyer buying a share of a company whose index is 5000/5010. If the buyer thinks the share value will raise then he will buy for 5010 and if he senses that it is going to fall, then he will immediately sell it for 5000. Thus the 10 difference will be the profit. In CFD trading it is very important to keep track of the market. Even a minute after the share value falls you can sell for 5000 only and you will be losing that 10 point difference. Thus checking the latest market trend and keeping an up to date track is very important in this contract for difference trade!
You may wonder in the example why a number pair is given. Usually the pricing for CFDtrade is given in pair. It is the buying and selling price. You can only buy or sell in the price range that is given in pairs. Thus the movement of assets is easily judged and the profit or loss is also determined based on the movement. This is one of the very useful pros of the CFD trading. One of the other major advantages of this trade is that people get profited even during the fall. The asset movement is such that you need not have to invest a huge volume. Just a minimal volume is enough to trade and minimal profits can be made. All the small profits put together will surely give you big profit!
CFD trading is mostly done in countries like Australia, South Africa, New Zealand, Hong Kong and other European countries like UK, Sweden, Norway, France and Ireland. If you are new to this trading there are online traders available to help you in buying and selling in this share market. They will give you a detailed explanation on various strategies that can be utilized to get a good profit!
CFD – Contract for Difference trading is one of the preferred choices among traders as it enables them to gain profit irrespective of the changing market trends. This flexibility has led to the popularity of CFD trading; many opt for this method over traditional trading methodologies. The trading is purely based on assumption about the future change of prices. If you think that the price of the asset is going to fall, you can go short and sell the asset before the price starts falling. This will provide you leverage and you can gain profit when the price of the asset falls according to your assumption. On the other hand, if you feel that the price of an asset is about to rise, you can open a buy position and gain profit.
Various strategies are used in CFD trading and you must be aware of the pros and cons before choosing one. Some of the commonly used CFD trading strategies include short-term trading, hedging, pairs trading and tax effective trading. Before choosing any of these methods you need to understand that you will be trading in live markets at a margin and hence there are chances for both profit and loss. Short-term trading is the process of trading with no stamp duty on a margin. During this process, you can sell the share that has incurred a loss and buy it later on when the price becomes high in the market. This will provide you an opportunity to gain profit when the price of the asset rises. Going long and short will help stabilize the situation and prevent from incurring heavy loss.
If you want to protect your holdings in the variable markets, you can choose hedging. It is one of the popular CFD strategies that allow you to hold a share or a percentage of the share without selling them completely. By opening a short position, you will be able to withhold the shares instead of selling and buying them later on. This will also provide a considerable profit ratio as there are chances that the price of the asset you hold might increase in due time. CFD trading is widely used by many traders for tax planning and managing risks. Through pairs trading, a trader can increase his/her profit ratio and decrease the risk comparatively. This method involves balancing short trade against long trade for attaining profit.
By anticipating the profit/loss ratio between the two pairs, the trader can stabilize his/her investment. In case of market fluctuation, both the pairs may rise/fall in the same manner, hence the trader will not incur heavy loss or profit. Tax efficient trading method is used by traders to reduce tax liability as they can control the time in which they need to release capital loss or gain. This provides them a leverage to change or buy/sell shares according to the current market trends. If you are planning to venture into CFD trading, you must plan accordingly and understand in-depth about the various strategies involved. This will help you gain leverage in the changing markets and help make consistent profit. So choose the right CFD trading strategy and make profit!