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Five reasons why you should opt to trade CFDs

by , 20 January 2015

If you want to trade derivatives, you'll come across a number of different instruments you can use. One of these instruments is contracts for difference (CFDs).

So why should you consider trading CFDs instead of just buying shares?

Read on to find out…

Why you should trade CFDs

#1: CFDs are geared instruments

As CFDs are geared instruments, you can trade what you want and only pay a fraction of the price.

If you trade a share that has ten times gearing, for every one CFD you buy, you can benefit from the value of ten shares.

You just have to pay your CFD broker a margin amount, 10% in our example above, to open the trade.

#2: The costs of trading CFDs are smaller than investing in shares

When you trade CFDs, you don’t own the share. That means you don’t incur a lot of the costs that you do when you buy shares.

For CFD trading, you pay around 0.5% in charges.

#3: With CFDs you can go long and short

You don’t have to hope the market only rises like you do when you invest in shares. With CFDs you can profit when the price of a share falls too.

So you have the option of either going long (hoping the price of the underlying share will rise) or going short (hoping the price of the underlying shares will fall).

#4: CFDs don’t have expiry dates

Unlike single stock futures for example, CFDs don’t have expiry dates. This means you don’t have to worry about rolling over a contract. But you still need to keep on top of open trades and what’s going on with the underlying share.

Holding a CFD trade open for a lengthy period of time will cost you in financing charges over time.

#5: If you buy a CFD, you still receive dividends

Even though you don’t own the underlying share, if a company pays out a dividend, you’ll still receive it if you’re in a long trade.

If you’re short, you must pay the dividend amount.

So there you have it, five reasons why you should opt to trade CFDs.

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Five reasons why you should opt to trade CFDs
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