A Contract for Difference or CFD, as it is popularly referred to, is a type of derivative trading. In CFD trading, you get to theorize if the price of an asset will increase or decrease, without you actually possessing the asset. Therefore, how well a CFD performs is a reflection of the underlying asset. The profit or loss realized usually depends on how the value of the underlying asset changes to the opening price.
Here is an in-depth article on how CFDs allow you to profit from the different underlying financial assists traded on the global financial market.
Stock CFDs
These are the most popular CFD contracts traded on the financial markets across the globe. The prices of the CFDs move together with the value of the underlying asset. Therefore, if there are major stock market movements, the value of the CFDs will also experience a substantial change in its value.
In CFDs trading, you can take advantage of leverage, hence allowing you to trade a greater volume of shares different to what is allowed in traditional investment. You can also qualify to receive dividends for the value of the underlying assets for every long trade made. Thanks to this, you get to make money from an extra income stream. Furthermore, you can sell stock CFDs and make money from a fall in the share price.
If you wish to trade CFDs, look out for the most popular stock CFDs, including Tesla stock CFDs, Google stock CFDs, Facebook stock CFDs, Tesla stock CFDs, and Apple stock CFDs.
Commodity CFDs
Commodities are in-demand physical assets and are categorized as either soft or hard commodities. Some of the most popular commodities to consider when CFD trading include soya beans, heating oil, crude, gasoline, wheat, corn, and metals. Usually, the quality of these assets is identical from one product to another, and such products are referred to as fungible goods. For instance, corn is most likely identical to the next corn. Thanks to commodity CFDs, you can trade the futures markets of the underlying asset.
Several elements make it challenging to trade commodities on the exchange, and these are expiry dates, dissimilar lot sizes, and varying exchanges for the different commodities. However, CFD trading offers you a lower trading cost, fewer complexities when trading, plus you never are confused about the exchange to choose for certain commodities. Moreover, commodity CFDs trade makes it easier to manage your risks since the units are a lot smaller compared to the trading futures.
Index CFDs
The index CFDs are linked to how well the benchmark equity index is performing. There are several reasons why you should consider trading index CFDs, including low trading costs and lower margin requirements, compared to stock CFDs reaching as low as 1% in some markets. Therefore, with a $1000 investment, you can control a considerable sum of $100,000. Furthermore, you have access to the global market, making it easy to diversify your portfolio and fairly higher liquidity.
There are numerous index CFDs you can choose from, but it is best to stick to the common ones. These include Nasdaq Composite, Nikkei 225, FTSE 100, S&P 500, and Dow Jones Industrial Average. One crucial thing you must know before investing in index CFDs is that its value is connected to the corresponding futures market and not the underlying index. Nonetheless, the actual BID-ASK spread might change marginally because of dividends and interest adjustments. Another reason why you should opt for index CFDs is that it can be traded in small lots of 1X the index value, unlike futures.
Cryptocurrency CFDs
Over the last few years, cryptocurrencies lead by the most popular one Bitcoin generated a lot of interest. As a result, the value of cryptocurrencies has continued growing significantly, with investors willing to take the risk on these volatile assets due to their great profit potential. The most popular cryptocurrencies other than Bitcoin include Litecoin, Ripple, and Ethereum.
When looking to get cryptocurrencies, you need to follow the traditional exchange route, and this requires dedication and time to install your wallet to store these coins. Nevertheless, cybersecurity breaches of these wallets have made investors wary of this method and, as a result, switch to cryptocurrency CFDs. With cryptocurrency CFS, you don’t own the underlying assets, thus preventing the risk of loss due to a cybersecurity breach.
You can also get CFDs on Bitcoin from most online brokers that are crossed to other crypto coins or a fiat currency such as the EUR or USD. The most popular CFDs on cryptocurrencies you should consider are;
- Litecoin crossed with the USD
- Bitcoin crossed with the USD
- Ripple crossed with the USD
- Ethereum crossed with the USD
Conclusion
If you knew about CFDs but didn’t know how to link them to the global financial system, reading this article has offered you with insights on how to do this. Therefore, you need not wait any longer to take advantage of these financial instruments to profit from price movements in the financial market.