What Is CFD Trading and Why Is It So Popular These Days?

What Is CFD Trading and Why Is It So Popular These Days?

Before you start your trading career, it is best that you know a little about CFD trading. CFD trading is one of the most popular ways of trading today. While it is different from trading stocks and forex currencies, the core mechanism is the same. Let’s know what CFD trading is all about and the benefits it offers over other types of trading.

Understanding CFD Trading

CFD stands for contract for difference. Right from the name it should be clear that it is some sort of trading of a contract. When you buy or sell contracts, you own the agreement to own the asset in its physical form. On the other hand, CFDs are derivative contracts wherein you never own the asset. You still speculate and predict the movement of the price of the asset. If the price moves in the direction you predict, you earn profit.

Benefits of Trading CFDs

You Don’t Own the Asset

It is clear from the definition of CFDs that you will not own the asset. What that means it that the responsibility of getting rid of the purchased asset is not only you. You predict the price of the asset when you open a position. If your prediction is correct, you will make profit from the price difference.

You Can Use Leverage

CFD trading gives you the opportunity to take advantage of leverages. When you open an account with a broker, you will see how much leverage is being offered to you. When you have leverage, you can amplify the profits on successful trades. Many online CFD brokers can give you leverages of 1:200 and even more when you trade CFDs.

You Can Trade Any Asset

When you trade in the stock market, you are only purchasing and selling the stocks in stock exchange. You don’t have access to the currency pairs. When you trade currencies in the forex market, you don’t have access to the digital coins. However, when you trade CFDs, you have access to all of these markets at once. You just have to use one platform to trade any asset that you want.

You Can Take Multiple Positions

One of the things you will love about CFD trading is that you can go short and long at the same time. If you are trading a particular asset but you think that things can go against your predictions, you can do what’s called hedging. You can go long and short on the same platform at the same time. This will prevent you from going into loss completely when the asset moves in the undesired direction. That’s because the other position you have taken will offset your loss.

The Right CFD Broker

Now that you know the many benefits of trading CFDs, it is time for you to start searching for the best broker. While calling a broker the best can be quite difficult because there are so many factors to consider, you can tell that 10-Capital is one of the best. 10-Capital has created the most flexible trading conditions for traders and the account requirements are quite easy too. In addition to that, you can see in this 10-Capital Review that it has one of the biggest asset indices with a reliable trading platform.

Final Thoughts

Of course, there are many other intricacies that you have to be careful about when you start trading. Just like any other profession in the world, you have to execute successful trades consistently to achieve your financial goals. Stay in touch with the latest news, use the indicators as much as you can, and always focus on reducing your risks when entering trades.

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