What is a CFD?
When trading a CFD, you don’t own the asset you are trading, instead, you speculate on the price and benefit if the market moves in your favour.
At TradeConnect we offer CFDs on over 60 different financial assets including Forex, Stock Indices, Commodities and Cryptocurrencies. Our CFD products provide our crypto traders with instant exposure to the major global markets around the world, including the US, UK, Europe, Asia, Australia and New Zealand using cryptocurrency (BTC, ETH andTCO) as margin collateral.
CFDs provide trader’s with the ability to trade both rising and falling markets, access to leverage in order to increase your initial margin and a wide range of global assets. But what exactly is a CFD and what are the benefits of trading them as part of your trading portfolio?
What is a CFD?
A CFD, otherwise known as a ‘Contract For Difference’, is a very popular trading product that people trade instead of buying shares outright.
In simple terms, a CFD is a type of derivative product, which means that its price is derived from the value of an underlying asset.
What is CFD Trading?
What’s unique about CFD trading is that, in contrast to buying an asset outright as you would with a Share or Stock and waiting for it to increase in price in order to profit, CFD trading lets you trade on the price movement of an asset.
This means that you never actually own the underlying asset that you are trading, but instead, you are speculating on the movements of its price, irrespective of whether it goes up or down.
A CFD can be one of all sorts of different financial assets, including:
- Forex
- Stock Indices
- Commodities
- Cryptocurrencies
- Bonds
- Stocks and Shares
Benefits of CFD Trading with TradeConnect?
CFDs were originally traded by banks, however, in recent years CFDs have become increasingly popular with retail investors for various reasons:
1. Ability to Go Long or Short
Firstly, one of the major benefits of CFD trading is the ability to go long or short if you think the price will go up or down in value. This means that, with CFD trading, you can profit both on rising and falling price movements.
2. Ability to Use Leverage
Another major benefit of CFD trading is that you can trade on margin, also known as leverage trading. Leveraged trading allows you to magnify the size of your trade with lower up-front capital.
For example, if a crypto trader wants to open a position on the S&P 500 worth $2,000 and the margin requirement of the platform is 5%, then he will only need $100 to open the trade.
In comparison, if the trader was to buy the asset outright, then they would have to pay the $2000 up-front and they could only profit when the price increased in value.
It is important to take note that leverage can significantly amplify losses as well as profits, so it’s very important to engage various order types and risk management strategies such as stop losses and take profits when trading on margin.
3. Ability to Hedge Your Position
The ability to hedge your position is another benefit of CFD trading.
Imagine that you bought a share and it was going down in value. In this example, your profit and losses are in the negative and therefore you are losing money.
If you then opened a short CFD position (to “short” the market), you could now limit your losses on your Share that you own outright, as the CFD trade would be gaining value even if the market containing your Share continued to drop in value.
There are quite a few advantages of trading CFDs on the TradeConnect Network including:
- Leverage up to 100:1
- Ability to go long or short the market
- Low up-front capital requirement
- Access a wide range of global financial markets on one platform
- Use crypto as margin to trade traditional markets
- Trade Forex, Stock Indices, Commodities, and Crypto in one place
- No hidden fees
- Transparent order book to see market depth
- Instant execution
- Keep your profits in Crypto
- Earn daily and monthly rewards in Crypto
