The history of financial trading is as long and varied as the industry itself. From the bookies to the stock market, financial instruments have been used for everything from making a quick buck to trying to turn your career around after being unemployed for a while. However, despite the many ways that financial products have been used for good and bad, today almost all financial traders use computers to trade financial derivatives instead of risking their own capital on the stock market or other trading platforms.
What is a CFD?
A CFD is a financial contract that allows you to buy or sell a variety of assets in one single trade. Traditionally, these have been commodities such as crude oil, gold and silver, but now they include bonds, stocks and indices. You can buy a contract that will Call for delivery in say 2 months’ time, or put on the market that you want to get into later. Once the contract is open, you are responsible for fulfilling your end of the trade even if the market goes against you. This is because the contract states that you must buy the assets when the price is “high”, not just “owned” by you.
How CFDs Work
First, let’s look at how a futures contract works. In a futures market, you’ll find two parties who are engaged in a financial transaction: the buyer and the seller. The buyer of a futures contract places a bet that one side of the contract will be more valuable than the other at a future point in time. The seller of a futures contract receives the bet from the buyer and is responsible for making the delivery of the underlying commodity. If the market price for the underlying goes up, the seller of the contract receives the profits from the rise in the price. This is known as the delivery of the contract. On the other hand, if the market price for the underlying goes down, the buyer of the contract receives the profits from the fall in the price. This is known as the payment of the contract.
Pros of CFD Trading
No risk of losing money
Financial derivatives were used by professional investors who were willing to take some risk in order to make higher returns. However, with the growth of the online financial trading industry, many financial investors have discovered that they can make more money by avoiding risk.
Easy to start
People who want to start trading financial markets have to learn how to use a trading platform and invest at least some of their own money. Luckily, many platforms come with user-friendly tools that make learning to trade easy. Little or no trading experience is needed.
Minimum or no trading fee
The only way to make money in financial markets was through trading. With CFDs, however, you won’t have to pay any trading or minimum fees if you don’t make any trades. You can find many platforms without or with minimum trading fees.
Easy access to investment funds
Traditionally, investors have to take their money out of a bank or another financial institution and put it into an investment fund. This can be a lot of work and may not be convenient for some investors. With a few adjustments to the way your investment account is set up, you can easily access funds that you need for trading with just a few simple clicks of your computer or smartphone.
Bottom line
Trading CFDs is a great way to make money from the stock market or other financial markets that you don’t fully understand. The technology is similar to what you would find in an investment fund or brokerage account. You may want to consider trading options such as futures and CFDs together if you want to take advantage of both these markets as well as increase your overall portfolio.
If you want to learn more about how you can use VESTINGFX and start CFD trading with us, please visit our website at www.vestingfx.com.
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