At its core, a CFD is a contract between a seller and a buyer. It hinges on the buyer paying the seller the difference between an asset’s current value and its value at contract initiation. CFDs allow traders to profit only from cost changes, simplifying trading by bypassing traditional exchanges.
Trading with CFDs incurs costs like spreads and overnight funding charges, occasionally including a commission. Traditional stock trading involves spreads, possession fees, and commissions but excludes overnight funding charges.
CFDs are favoured for short-term and day trading due to their flexibility in going long or short, leverage, and overnight costs. On the other hand, stock trading aligns with long-term investments, featuring a single commission expense. CFDs offer a cost-effective gateway to diverse markets without asset ownership, allowing profits in rising and falling markets.
CFDs rely on liquidity providers (LPs) for smooth trading. Choose a trusted LP to gain access across multiple asset classes.CFD trading presents benefits like lower margin requirements and international market access. However, It should be noted that leverage adds risk, as market volatility can amplify losses. Smartly managing capital to cover margin calls is vital.