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Wednesday, February 3, 2010

What are Contracts for Difference - CFD Trading

By David Hamilton

CFD Trading, also called Contract for Difference Trading is the best method for generating profits in volatile markets. CFD Trading is a deal or a deal that is agreed upon by the provider and the trader who operates on the closing and the opening price of shares. The profit entirely depends on the market price of shares and stocks. Hence, it is an incredible way of trading on the price fluctuations in the share market without personally getting engaged in buying and selling the assets possessed.

There is heightened risk in todays volatile markets but it could also mean greater profits or losses. It is a type of financial derivative that includes swaps, futures, warrants, convertibles, options etc. However, a number of investors are quite attracted towards these kinds of financial derivatives due to the following reasons:

- Large profits (but also equal amount of losses) can be made by investing little amount. The derivatives offer good amount of leverage.

- The investor is free to take upward or downward position in the basic instrument on which the financial derivative is based.

- It is possible for an investor to manage risk of the markets using a CFD.

Any investor, trader or speculator can easily access CFDs as compared to other popular financial derivatives, this is one of the major reasons for its popularity. This simply means, CDF is a contract between the buyer and the seller where they agree to pay the amount that is equal to the price difference between the buy/sell and sell/buy price of the financial product at the time of agreement.

CFD Trading is beneficial for sellers and investors. If the trader is smart enough, he or she can earn huge profits from a huge variety of markets that are loaded with currencies, indices, commodities and equities. If you compare to conventional trading, CFD Trading is too flexible. CFD can be speculated for upward or downward price fluctuations.

For instance you buy a CFD on share of value $12 and the share price rises to $12.50, then you earn a profit of the price difference of $0.50 for ever share that you bought when the buy price was lesser. This confirms that you will surely earn $500 on the 1000 CFDs you bought for low price. This is an affordable and flexible way to earn money. Here are a few advantages that have made this incredible financial product so popular:

- Helps to improve the trading capital as CFDs are traded on margin.

- No deposits, minimum invented price or minimum deal size.

- No need for stamp duty.

- It is a profitable business.

- one account for many financial products.

- Quick completion as well as greater liquidity.

- No fees are paid for index trading.

Therefore these are a few benefits that one enjoys with CFD Trading, provided you study the market well. People feel this trading method as the finest one as they earn good amount of profits on their investments immediately. - 23208

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