Contract of difference or in a more popular term “CFDs” are financial derivatives that allow traders to trade in price movements of certain assets and indices all around the globe. This became a crowd favourite due to it allowing you to buy only a fraction of an asset to enter the market.

CFD trading is probably one of the hottest markets today that simply gets all sorts of traders hooked! And that’s because it holds all the characteristics of an ideal trade such as leverage, the ability to hedge, no expiration date, exposure to various markets, flexibility and so much more!

So it’s really no surprise CFD trading is in various traders’ rosters this 2023. Make it part of your roster by letting its benefits decide for you! Check out the list of top benefits when trading with equity CFDs!

1 - Allows you to start small and profit big with Leverage! 

One of the things that make this market a hit with small and starting traders is how it allows them to start with little capital to open a position. In CFD trading, you only need to deposit a portion of your trading’s overall value to start.

In trading terms, the required deposit is called a margin and depending on the market, the margin size may vary. To give you an idea of the various markets with different margin sizes here are some examples:

  • For crypto trading margin size, it’s 50%
  • For shares trading margin size, it’s 20%
  • For indices trading margin size, it’s 5%
  • For forex trading margin size, it’s 3.33%

A tip to know your chosen market’s margin size, you can use a CFD calculator.

2 - Expose you to various markets

Another great thing about CFDs is that they allow you to venture into other markets quickly and easily. Exposure to other markets can greatly benefit any trader since this allows them to experience more than one market and diversify their portfolio.

And who knows, during your CFD trading journey you’ll bump into a trade you really like, may it be forex, commodities, indices, bonds and so much more! Additionally, because this sort of trading often enables traders to connect with markets from anywhere in the globe, it gives them more freedom to profit from market moves wherever they may be. 

3 - Allow you to benefit from bear or bull markets

The reason this trade is so ideal for starting traders is that this allows you to benefit whether the market is rising or falling. All you have to do is work on your strategies and make more accurate speculations.

So you can either go long by buying or go short by selling. So depending on your speculation it may vary. If you speculate the market to rise, go long and buy. And if you think the market will go down, go short and sell.

And if the market shifts in your favour, you profit. Your profit will be determined by your entire position, not the margin you paid to start the trade, which may be more than the margin you initially paid.

4 - Perfect for long positions since it doesn't expire!

A unique thing about CFDs is that it doesn’t expire in most markets! So whatever the agreed-upon amount is on the contracts (even if the market prices change) it will remain the same. 

When you trade with CFDs you are effectively committing to exchange the price difference of the underlying asset between the opening and closing dates of the contract. In order to counter the open position, CFDs are normally closed by starting an opposite trade that is either buying or selling.

Although CFDs do not expire in a conventional sense, they are nonetheless vulnerable to various circumstances that might lead to their termination. 

5 - Allow you to take advantage of risk management tools

Most CFD trading platforms provide various quality tools and features, especially risk management tools. These types of tools allow you to set your predetermined amount to minimize/limit your losses when trading and automatically secure profits.

Examples of risk management tools are stop-loss orders, take-profit orders and so on.

Take away

Now you know the 5 advantages you can indulge when trading with CFDs, you can now make a more accurate decision to enter this trade or not. But whatever you decide to do, make sure to go for an asset you’re interested in and are familiar with. In trade, knowledge is power! So go with what you know more about.