Latest update February 18th, 2020 11:59 AM
CFD trading explained by AlfaTrade
A CFD, (Contract For variation is a contract made between two parties or persons to exchange the variation between the opening and closing price of a contract. CDFs are products that will allow you to trade freely on live market price without having to own the instrument on which the contract you have been awarded is based. CDFs are helpful in speculating the future movement of the market prices despite the rise or fall of market prices at a given time. You can choose to sell (go short) which allows you to gain from the price fall. Besides, you can hedge your portfolio to indemnify any loss that was likely to occur from the value of your investments. With over 10000 markets to trade on, you are subjected to gain from markets you had no access to before.
Understanding CDFs
Being leveraged products, CFDs enable you to trade with a fraction of the value of the contract. This makes it easier for a trader to trade without having to raise the full amount. It also helps in magnifying the return on investment of the trader. However, it is advisable that you keep your leverage at a certain level as higher leverage could result in losses. AlfaTrade offers prices on shares, commodities, currencies and much more.
Features of CFD Trading
The Ability to Go Short or Long
CFD Trading empowers traders to buy (Go Long) if they believe that the market prices will shoot up, or sell (go short) if they believe that the price will go down after some time or in future. So if you have a belief that a certain market of the company will be faced with the loss of value, you can use the available CFDs to sell it at the opportune moment. This will result in an increase in profit in line with the decrease or fall in the price. Therefore, if the market moves a direction different from yours, you will suffer losses. This makes CFDs flexible when it comes to trading as they enable you to gain from any move, despite the direction at which the markets are moving.
Hedge your Portfolio
An existing portfolio may lose some of the value accrued to it. If you sense this kind of a scenario, you can use CFDs to get rid of the losses by short selling. For instance, of you have $ 6000 worth of Dubai Bank shares in your portfolio; you can sell the equivalent of $ 6000 worth of Dubai Bank shares using CFD trade. This means that should the Dubai Bank shares fall by 6% in the underlying market, the loss in your share portfolio will be withdrawn by profit in your short sell CFD trade. Investors to hedge portfolio, especially in markets that experience volatility, mainly use this kind of trade.
High Leverage
CFDs are operated on leverage, meaning that you only pay a fraction of the total trade as opposed to paying the margin (full amount). You can use leverage in magnifying your return on investment, as the full business exposure exceeds the initial deposit that is required to trade. Nevertheless, the losses are magnified in a similar way in case the markets goes contrary to what you anticipated. This can lead to massive losses that can exceed your initial deposit, to avoid this, ensure that you understand the risk involved. AlfaTrade offers risk management tools that can help you in protecting your trade against any potential losses.
Wide varieties of Markets
CFDs are provided in thousands of individual markets such as commodities, currencies, indices, interest rates and shares. CFDs can be used to gain exposure in the top rated global markets all across the globe. As shown in this review on AlfaTrade they can assist you in accessing competitive commissions, and margins.
