CFD contracts for difference and their differences from other options for exchange transactions
Exchange trading using CFD contracts is gradually replacing other transaction options.
Every day more and more brokerage companies are starting to offer their clients this particular transaction option.
CFD contracts for difference, at their core, are an exclusively speculative option for transactions on the foreign exchange, stock or commodity markets.
That is, when opening a buy (sell) order, even close, there is no question of the actual delivery of this product, and the trader is not a market participant.
CFD contracts have one goal: to make a profit from a favorable price change after the trade is opened:
Are there any differences when trading CFD contracts?
Yes, there are quite a lot of them and surprisingly, almost all of them are positive and make trading easier.
Pros and cons of using contracts for difference:
• Versatility – you can open trades on virtually any asset, including securities, commodities, currency pairs, cryptocurrencies, and indices. All assets are available on a single trading platform.
• Higher leverage – its size here can reach 1:3000, while in standard contract options this figure rarely exceeds 1:10.
• Low commissions and spreads – it is much easier for a brokerage company to organize trading CFD contracts, hence the lower cost of the fee for opening a trade, which allows scalping on short-term transactions.
• No expiration dates – that is, your transaction will not be closed forcibly, as happens when trading using futures.
• Dividends – Although CFDs do not involve physical ownership of shares, dividends are still paid when you buy the stock.
There were some downsides too
• Swap charges – when trading CFDs, you'll almost always be charged a fee to carry your position over to the next day, even if you're not using leverage. While it's not a drastic change, swap charges can still have an impact on the outcome of a trade.
• Less choice – this is especially true for stock trading. CFDs typically only allow you to trade the most popular stocks, and the number of assets typically ranges into the hundreds. Alternative options, however, allow you to trade thousands of assets.
• Not all brokers provide the opportunity to use this type of transaction, and if when trading currency it is not so noticeable, then when working with assets such as commodity futures it is already felt.
Overall, I'd say CFD trading is ideal for day trading and scalping with high leverage. If you want to trade securities, however, spot trading may be more profitable in some cases.
