CFD is the abbreviated form of Contracts for Difference. CFD trading has become very popular over the recent years. CFD is essentially a contract between a buyer and a seller, wherein the buyer promises to pay the seller or vice versa, the difference between the current value of an asset and its value at a predefined time in future. The change in the price of the asset decides who pays whom. For instance, you may buy a CFD of a stock, currently priced for $10 and within a predefined time the price increases to $10.50, you make profit due changed price. It means if you had bought 500 CFDs, you would have earned $250. On the other hand, if the price falls down to say $9, at the predefined time and you had got 100 CFDs you would have lost $100.
As you can see CFD trading is quite like trading of stocks and shares but there are few differences, or shall we say advantages that are adding to its popularity.
First of all, CFDs are available for all kinds of stocks and that include trading of foreign currencies or Forex as well various indices. The most significant advantage of CFDs is that you need not pay for the whole value of stock when buying thorough CFD. You need to pay a nominal amount, varying from 1-20% of the actual cost. So, it allows you to buy more stock for any given amount of money. Farther, there is no stipulation for buying any specified minimum amount, meaning you could invest as little as $ 50. And, since it doesn’t involve physical transfer of stocks, there is no stamp duty to be paid at XFR Financial Ltd. Additionally, during the validity period of the CFD, you are allowed to receive any dividends paid by the company of which you bought shares. It also needs to be pointed out here that normally CFD brokers charge considerably lower fee, compared to share brokers.
Another very helpful feature of CFD trading is the availability of stop-loss option. This feature enables you to ensure that your instrument is sold before or after reaching a specified price, after which trading may become unprofitable.
How to start CFD Trading With XFR Financial Ltd
You can start CFD trading with an authorized agent like XFR Financial Ltd is or one of the CFD providers, meaning market makers or brokers. You can also find a number of online companies offering CFD trading services. In either case, you are required to pay a small percentage of the actual price of stock that you wish to buy. The amount varies with the agent, charging a nominal fee for the services rendered. As a matter of fact, you can find some CFD brokers who don’t charge any fee. So, your only expense needing consideration is the amount that you are prepared to invest.
Risks of CFD Trading
Before you start trading with XFR Financial Ltd you should be informed of risks involved. The major risk in this kind of trading is overtrading. Because you need to pay a small percentage of the cost of instrument you want to buy, you get inclined to make more and more purchases. Over trading is among the major reasons of losing money. Another disadvantage is since shares do not exchange hands, as a CFD holder you are deprived of the rights that normal share holders enjoy.