Financial trading isn’t necessarily the easiest of things to get involved in. There’s so much to think about, from the things you want to invest in, the money you want to commit, and the broker you decide to use.
One such decision to make is the question of which products you decide to use to speculate on the markets. It’s not always a simple case of buying a certain amount of currency or precious metal and then selling it – there are different contracts and trade types to facilitate speculation. One such product is the contract for difference, or CFD for short. Here’s a quick run-down of why CFDs could make a good first investment instrument.
There are two things to cover to begin with. The first is that CFDs are not available everywhere; indeed, in neither the financial centres of the USA or Hong Kong are they a permitted product, though there are similar options. Secondly, we should look at exactly what a CFD is. Unlike some other instruments, CFDs are fairly straightforward – it is an agreement that the party that is the seller, will pay the buyer the difference in price of an asset between now and when it comes to contract time. If the difference is actually in the negative, then the payment is the other way round.
The benefits then are fairly clear and make sense for those new to the markets.
CFD Benefit #1
The first is being able to speculate on the price moving in either direction, and not having to worry about the deal being significantly different to set-up depending on which way you want to go. Whether you think an asset is going to rise or fall in value, you can easily use CFDs.
CFD Benefit #2
CFDs can also be traded on margin, which means that you can deposit a comparatively small amount with your broker, and then control a much larger investment. This allows you to make much bigger profits without needing a huge amount of liquid capital. Of course, you must be aware that the reverse is true – you can lose more than you deposit.
CFD Benefit #3
The final big benefit is that with a CFD, you don’t ever own the underlying asset. You might be speculating on the price of copper for instance, but you’re not ever buying or selling it. This also means that there’s a huge number of assets that you can potentially speculate on. You will need to check with your broker however.
There you have it; CFDs are easy to understand, available on lots of different assets, and can be made to earn considerable sums of money quickly and without a lot of investment. They’re a solid choice to begin with.