What is a CFD?
CFDs are leveraged products that allow traders to speculate the rising and falling of market prices of the global financial market and open short (sell) or long (buy) contracts. CFD trading does not, however, involve the buying and selling of the actual underlying financial assets.
What does CFD stand for?
CFD stands for Contract for Difference.
What are the key features of CFDs?
- They allow trading in smaller contract sizes, compared to other trade options like futures, making it more accessible for small traders.
- Its pricing is more transparent.
- It does not involve buying and selling of the actual underlying assets.
- They are exempt from stamp duties since they don’t involve the underlying assets.
- CFD contracts do not have expiry dates.
- It is easy for CFD trading platforms to create CFD trading instruments, thus giving the traders a wide selection of underlying instruments to trade.
- They allow hedging
- They allow traders to leverage their trades through margin trading
- Some of the costs of trading CFDs include commissions and overnight charges.
Differences between CFDs and spread betting?
- Tax efficiencyCFDs traders pay capital gain taxes but they are exempted from paying stamp duties. However, Spread betting traders do not pay both the stump duties and capital gains taxes in the UK.
- AvailabilitySpread betting is usually available to a limited number of countries like the UK and Ireland while CFDs are available for trading by traders around the world.
- CommissionsSpread betting does not include trading commissions. However, CFDs may include commissions depending on the trading platform.
What to look for in CFD trading platforms?
When looking for a good CFDs trading platform, you should look for the following:
- The reputation of the CFD platform,
- The regulation of the platform – which regulatory authorities have licensed it,
- The minimum deposit amount required to open an account,
- The availability of a demo account,
- Type of tradable assets,
- Types of trading accounts available and their features,
- The base currencies of the trading accounts,
- Available trading platforms,
- The maximum leverage that the broker offers,
- Available deposit and withdrawal options, and
- The spreads and commissions charged by the platform
Should you trade CFDs?
Despite the risks involved in trading CFDs, it is still a worthy investment opportunity that can give high Returns. However, you should ensure that you choose your CFD trading platform wisely to ensure that you get a good trading experience.
There are very many CFDs trading platforms available online and you should do thorough research before settling on one. Hope this review will help you in reviewing the best CFD trading platforms and choosing the best among them.
Above all, you should ensure that you use all the risk management strategies at your disposal to help mitigate the risks involved in CFD trading.