CFDs stand for contracts for differences and they are agreements between two parties in order to exchange the difference between current value of assets and the value at buy/sell time. CFDs are products which allow you to take the profits from the movement of price of shares, futures, indices and other financial instruments without the need of actually owning them. There is no physical purchasing of assets while trading CFD. You can profit from the difference of the prices between buying and selling them through your XTrade account.
What are the features of trading CFD?
Going long or going short – You can profit from both the rising as well as falling markets when you are trading CFD. If the prices rise you go long i.e. buy and when the prices fall, you go short i.e. sell. You can decide how long you keep your trades open. The more the prices move in the direction you have anticipated, the more will be the profit you can make at XTrade. The more it moves in the opposite direction, the greater will be your loss.
Margin – With margin or leverage trading, you get the ability to control your funds more in order to increase the potential return on the investment you make. By trading CFD you can thus control a higher value of trade with a lower percentage of deposits which can be as high as 100:1. For example. A margin of 5% or a leverage ratio of 1:20 you can trade with $10000 by using just $500 as the margin. This allows you to take the advantages of even small movement in the market by controlling more money then you actually own.
But it has to be noted that leverages are though advantageous in increasing the profits you can make, they can also increase the amount of losses you may have. So excess leverage should not be taken and a proper money management is required.
Cost of Trading With XTrade
Cost of trading – Trading CFD is done at lower costs as compared to other investment methods. The minimum amount to open a CFD trading account is lower as compared to other trading methods. Many brokers do not require any minimum amount of deposit required to open a CFD trading account, one of them being XTrade, and you can start trading with any amount of money you have.
The commissions you need to trade CFD is also lower as compared with other methods of financial trading. Apart from these, there is no cost associated with the holding of assets in this case since you do not own any asset physically in CFD trading. The costs like stamp duty are not there in trading CDFs.
Using CFDs for hedging – If you feel that your current Xtrade portfolio is losing some value, you can immediately start trading CFD and use CFDs to compensate the loss by short selling.