CFD Trading Benefits
Galvan is finding that CFD trading is becoming increasingly popular as it offers significant advantages over traditional methods of investing. CFD trading allows you to reap all the economic benefits of share dealing, without actually physically owning the shares.
Profit when markets fall as well as rise
Markets go down as well as up. With CFD trading you can potentially profit from falling markets because you are trading on the price movement of a financial instrument without physically owning it. This makes it as easy to sell an instrument as it is to buy. This is known as ‘going short’. Other methods of shorting shares are often inconvenient and expensive.
Leverage your investment potential
CFD trading is leveraged, so you can increase your exposure to an underlying asset from the same initial investment. To open a CFD trade, you need to deposit only a fraction of the total trade value. Leverage is great news if the market moves in the direction that you expect, but it carries a high degree of risk if the market moves against you.
No stamp duty
One key benefit of CFD trading is that you do not incur any stamp duty, as you are not making a physical purchase.
Hedge other investments
As CFDs offer the ability to go short as easily as long, they can be used to provide ‘insurance’ against price falls in an existing portfolio. For example, if you have a long-term portfolio that you wish to keep, but you feel that there is a short-term risk to the value of your investments, you could use CFDs to mitigate a short term loss by ‘hedging’ your position. If the value of your portfolio falls the profit in the CFDs should offset these losses.
Pairs trading
A commonly used CFD trading strategy is to trade one share against another, often in the same sector. This approach – buying one CFD while selling another – is known as pairs trading.
Here are a few examples:
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Buy British Petroleum, sell Royal Dutch Shell
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Buy AstraZeneca, sell GlaxoSmithKline
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Buy Barclays, sell Lloyds
Trade financial markets around the world
CFD trading gives you access to a wide range of markets that would not otherwise be available to retail investors. It is as easy to trade on the price movement of commodities such as oil or gold as it is to trade an individual equity. CFDs also allow you to speculate on whole indices or sectors from a single trade.
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