By Nicholas Dockerty
When you trade CFDs you never physically own the underlying financial instrument and that means you can take a position on the financial markets at a lower cost than more traditinal methods of trading.
With CFD trading, because you don’t have to pay the full value of any position you take up – just a small deposit (margin) – you can leverage up to 20 times your initial capital outlay. This is called trading on margin.
Trading CFDs can help you profit from falling as well rising markets.
A CFD (contract for difference) is an agreement to exchange the difference in value of a share at the time it is opened and at the time at which it is closed.
Simply put, with CFD trading you ‘buy’ (go long) if you want the market to rise and ‘sell’ (go short) if you expect it to fall.
The amount of money you make, or lose, is determined by the amount of contracts you hold multiplied by the difference in price at which you opened and the price at which you closed.
You pay a small initial deposit (margin) and a commission which is calculated as a percentage of the value of the transaction.
Unlike traditional share dealing you won’t pay any broker’s fees or stamp duty.
With CFD trading it is possible to benefit from Direct Market Access which means any contracts you open will go directly to the stock exchange and will be at the underlying market price.
The range of markets you can trade CFDs on is extensive and similar to what you would expect if you were using more traditional methods to trade; from forex to shares to indices. They also offer some new and innovative ways of the financial markets like the always exciting binary trades.
To find out more about the CFD and the financial markets visit www.igmarkets.com.sg.
Remember CFD trading can result in losses as well profits so make sure you understand all the risks involved.