CFD trading is preferred by many individuals since it provides great flexibility, which is required to trade in current markets. If you trade CFDs you will be able to use a mix of leverage and lower transaction costs, and consequently this means that you will be able to maximize your returns.
Actually, there are several main characteristics that make CFD trading so popular and in this article we will consider them in more details.
Characteristic #1: Leverage
In other words leverage is the ability to do more with less. But while trading contracts for difference, it is essential for you to understand this may mean for you not only earnings but loss as well.
It should be pointed out that CFD trading leverage allows traders to take the best advantage of market movements. To go into more details there is a need to add that only 5 percent of the money should be put down on the majority of trades. The balance 95 percent is financed by the trading company. So, there is a possibility to gain 50 percent or even more in just one day even in the case the market moves less than three percents.
Characteristic #2: No Contract Size
CFD trading is similar to trading financial derivatives. The main difference is that there is no minimum size of a contract. To put it differently it is possible to trade CFD for one single stock. This means that CFD provides flexibility, since the investment need not be in multiples of lot sizes.
Characteristic #3: No Expiry Date
One more critical thing that makes CFD trading different from futures trading is the fact that there is no expiry date. As you know, when a person deals with futures contracts, as soon as the expiry date is near, the number of buyers for a contract is significantly dropping. It should be also mentioned that liquidity crunch exerts a downward pressure as the contract comes near its expiry dates. As regarding CFDs, they are absolutely free of such false price drops.
Characteristic #4: Lower Transaction Costs
You need to be ready for that CFD trading may cost more in terms of brokerage in some countries. But the main idea was invented to take advantage of positive taxation treatment towards gain from stock markets. You should also keep in mind that it cuts your tax bill and raises your profits.