Why use a broker for CFD trading?
Trading Contracts for Difference (CFDs) is an extremely quick and easy way to get involved in various markets without actually buying the underlying asset. Instead, you simply speculate on whether the price will rise or fall, buy at low prices, and sell at high ones. However, it’s important to understand that CFDs are unlike most other financial products – they don’t involve taking ownership of an asset like shares do; instead, you trade contracts based on what someone else owns or doesn’t own.
Even if you think one company will absolutely destroy another in the future, it doesn’t necessarily make sense to buy their shares – instead, you can speculate by using CFDs. You can do this through an online CFD platform like Plus500 or even through many offline stockbroker accounts. cm trading is a reputed broker.
How do CFD brokers work?
- Huge choice of markets – not all brokers offer the same selection of assets, but if you’re planning on diversifying your portfolio by using CFDs, then you’ll want to find one that offers different types of assets. For example, some traders will buy and sell stock index futures or options contracts and stocks, and others will focus on forex. Either way, it’s useful to be able to see whether your broker deals with those markets.
- Leverage trading – As we mentioned above, contracts for difference are different from actual asset ownership, which means that traders can take out a leveraged position on any market they like. Traders that want more control over their investments will avoid using leverage, but those who want to amplify every little price change will use this as much as possible.
If you’re looking for deep liquidity and great markets (with lots of competition), then place most of your money with Plus500 and invest smaller amounts elsewhere if there is no fee involved!
- High rewards system – It’s tempting to only read about the huge returns from day traders, but keep in mind that they also face big losses. In any case, most people who use CFDs are more interested in a long-term strategy than rapid growth and will be happy with an average annual return of 5% or so. However, if you’re looking for higher rewards – CFD brokers can make this possible, sometimes offering 100:1 leverage on some assets (and up to 1 000:1 leverage on others) which means those smaller losses may soon become much bigger ones!
- Fees/ Commissions – CFD brokers aren’t free. They make their money by charging fees both for opening trades and when you make a profit, so it’s important to only use these services if you know roughly how much trading will cost and the average gains or losses that you can expect. In addition, you’ll want to find a platform that offers reasonable prices compared to competitors – something many recent reviews will help with. It may also be worth comparing commission costs on different assets, although this isn’t always necessary depending on how frequently you trade those particular markets.