Are you looking for a more flexible alternative to traditional stocks? Then you might want to consider Contracts for Difference or CFDs. CFD trading is becoming increasingly popular among investors who want the ability and convenience to speculate on the ongoing prices of underlying assets such as indices, commodities, and shares without purchasing them outright.
Despite this rapid rise in popularity, many traders still need to become familiar with the purposes and advantages of investing through CFDs. Today we’ll explore why this type of trading can be beneficial compared with traditional stock trading – so read on for eight reasons that may convince you it’s time to switch your strategy.
Leverage
If you want to find new financial opportunities, trading Contracts-for-Difference (CFDs) instead of stocks is an excellent option. CFD trading in Australia offers several advantages, such as greater flexibility in terms of the timing of your trades and the ability to take advantage of economies of scale. However, the most significant benefit associated with CFD trading is leverage.
Leverage allows you to increase exposure to a specific stock or index without using all your capital, which minimises risk while maximising potential return. Leverage also means that trades can be much higher than one would see when dealing in stocks – as long as it is used carefully and sensibly. Therefore, taking advantage of leverage when trading CFDs instead of stocks may be an excellent investment strategy for those wishing to increase their potential return from the stock market.
Variety of instruments
CFD trading offers a wide range of instruments to choose from. You can trade CFDs on commodities, indices, stocks, and more – which gives you the flexibility to engage in trades that may be difficult or impossible with traditional stock trading.
In addition to these more traditional options, CFD traders have access to alternative products such as bonds, options, and derivatives. It allows investors to take advantage of new opportunities and improved diversification that can lead to higher returns in the long run.
Lower costs
CFD trading often comes with lower costs associated with stock trading. Spreads are an essential cost when conducting trades, and CFDs typically have tighter spreads than stocks. It can significantly reduce the amount of capital needed to complete a trade.
In addition to the spread, there is usually no commission or fees for trades which further reduces the total cost of the trade. It is especially beneficial for those who are trading with a limited budget.
In addition to lower costs, CFD trading also allows investors to benefit from the convenience of online trading platforms and mobile apps. These tools make it easier to monitor your portfolio, execute trades quickly and efficiently, and adjust strategies in real time – all from the comfort of your own home.
Accessibility
Unlike stock trading, CFDs are available to anyone regardless of their investment capital. Even those with a limited budget can take advantage of the opportunities CFD trading offers.
In addition to accessibility, CFD traders have access to markets worldwide at any time of day or night. It also allows you to take advantage of real-time changing markets, which could mean better investment returns.
Margin trading
CFD trading allows traders to use margin trading, a form of borrowing that can help you increase your exposure to markets without using all your capital. It can be beneficial in cases where you may need more money to purchase a large number of stocks outright.
By leveraging margin trading, CFD traders can take advantage of opportunities that may otherwise have been inaccessible – which can, in turn, lead to higher returns.
No dividend payments
One of the advantages of trading CFDs over stocks is that there are no dividend payments involved, which means that, unlike stock traders, CFD traders can handle when or how to collect dividends from their investments.
It can benefit those needing more knowledge or expertise to handle dividend payments and other related activities. It can also reduce the time and effort needed to manage your investments, allowing you to focus solely on making money in the markets.
More price action
CFD trading usually offers more price action than traditional stock trading. It is since CFDs are more liquid, and traders can take advantage of leverage and margin trading.
By taking advantage of these features, CFD traders can capitalise on short-term market movements which may not be available when trading stocks. It can be beneficial for those who are looking to take advantage of short-term trading opportunities.
Short selling potential
Finally, CFD trading offers the potential for short selling. Short selling is a technique used by experienced traders to find opportunities in falling markets. This strategy involves borrowing securities and then selling them before repurchasing at a later date when the price has dropped. Short selling is not available with traditional stock trading, providing an additional opportunity for CFD traders to find opportunities in both rising and falling markets.
