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 due to a favorable price change after opening a transaction:
Are there any differences when trading CFD contracts?
Yes, there are quite a lot of them and surprisingly, almost all of them are positive in nature and make trading easier.
Pros and cons of using CFDs:
• Versatility – you can open transactions on almost any asset, these could be: securities, commodities, currency pairs, cryptocurrencies, indices. Moreover, all assets are collected in one 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 – organizing CFD trading is much easier for a brokerage company, hence the lower cost of the transaction opening fee, 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 – despite the fact that CFDs do not involve physical ownership of shares, when entering into purchase transactions, dividends are still accrued.
Not without its downsides
• Swap charges – When trading CFDs, you almost always incur a charge for rolling your position over to the next day, even if you are not using leverage. It cannot be said that the swap radically affects the outcome of the transaction, but still.
• Less choice – this is especially true for trading securities; as a rule, CFD contracts allow you to trade only the most popular shares; usually the number of assets here is in the hundreds. While using alternative options, you can work with thousands of assets.
• Not all brokers already noticeable when working with assets such as commodity futures
Overall, I would say that CFD trading is ideal for intraday trading and scalping with high leverage. If you want to work with securities, then in some cases it will be more profitable to use spot transactions.