CFD forex – advantages and disadvantages of these trading instruments

Imployee earnings in commodity and stock markets are popular all over the world. However, trading in such assets requires significant funds, which are not available to all. However, this does not mean that such trading instruments are not available to traders with small deposits. In recent years, almost all serious forex companies provide their clients with the opportunity to trade CFDs, even if the amount on the trading account is very small. In this article I want to talk about what CFD forex is, its advantages and disadvantages, as well as who this type of earnings may interest.

For the beginning we will deal with the very notion of CFD contract. Basically, it’s a deal between a buyer and a seller. It assumes that one of the parties will pay the other party the difference in price that will be formed at the time when the transaction will be closed. Such a contract will remain in force until one of the parties to the transaction decides to close it. But it should be noted that CFD forex has its own peculiarity. If the trade is conducted at the Forex dealer, then the right to open and close a deal belongs to the trader. The brokerage company is the counterparty. As a result, it turns out that such transactions for a trader are practically no different from trading in shares or goods.

CFD on shares

These tools are probably the most popular among traders. And there are reasons for that.

Benefits of CFDs on shares

Pledge requirements are small compared to those that exist when buying shares on the stock market. This means that traders with small capital can use the trading instrument. Which, of course, is a plus.

The minimum transaction volume may be equivalent to one share. Such transactions are not allowed on the stock market. As a rule, the lot is equal to 100 shares.

Because the counterparty is a dealing center, there is no low liquidity problem. A trader can always open and close a trade at the price that was declared.

Lack of CFDs on shares

The most significant disadvantage is the large spread. And also to the disadvantages we can refer the difficulties with the analysis of the instrument because of the lack of access to the information on the volumes and bandwidth of deals.

When it comes to CFDs on commodities, indices and bonds, the pros and cons are the same as those on stocks. However, commodity CFDs have an important feature that must be considered. The fact is that commodity futures cannot be traded on the market for an unlimited time. When the time comes for the delivery of raw materials, the auction is closed. Therefore, commodity CFDs will be automatically closed by the dealing center at the set time.

CFD forex may become an additional source of income for the trader. But before you start to trade these instruments, you should get acquainted with them in demo trading.Fyodorov’s Inga28.01.2019