CFD or Contact for Difference is defined as the difference between stock values at the time of entry and exit. CFD is a derivative product and highly popular due to the fact that it allows you to trade on price movements in live market even though you don’t own the assets. While for every price movement in your favour, you book a profit and for every price movement against you, you make a loss.
The major advantage of CFD trading is its lower margin requirements, as low as (2%), which allows investor to extract more return from less capital outlay. CFD products are available in most of the world’s major markets, allowing investors to trade easily from their desired market.
Other advantage of the CFD market is that there is no capital restrictions. There is neither a minimum daily capital investment nor maximum amount of day trades for an account. Even CFD broker does not charge any entry or exit fees at times.
CFD also has its share of demerits. It is a risky option as higher leverage means higher loss if incurred The profit margin from small moves isn’t too great forcing the traders to increase their input. Also, the market isn’t regulated, thus demanding a proper background check and research on your broker.
CFD is a good trading proposition presenting a lot of opportunities but it also has its share of downs. So, the traders should be cautious where they are deciding to invest their money.