CFD trading allows you to trade the price movements of currency, stock indices and commodities like gold and oil without buying the underlying product. When you trade CFDs (contracts for difference) with FXCM, you enjoy the benefits that only a global leader can provide.
A CFD, or contract for difference, is a security that allows two parties to exchange the difference between the opening and closing price of a contract. These agreements allow the two parties to settle the final contract using cash, instead of physical goods or securities. This approach frequently makes settlement easier.
By trading CFDs, investors can receive all the benefits associated with owning a security without actually possessing that security. Investors can harness these contracts to take long or short positions, speculating on the underlying asset's future price movements. Alternatively, they can use these contracts to hedge their portfolios, helping to manage different kinds of risk such as downside risk.
These contracts also provide leverage, allowing investors to potentially generate more robust returns. Investors who trade CFDs using leverage may only have to put up a small fraction of the contract's cost, so they can potentially generate a stronger return on investment.
Harnessing leverage can also allow investors to trade CFDs with a much smaller capital outlay. Leverage limits on the opening of a position vary of up to 30:1 depending on the tradeable instrument. Investors should keep in mind that leverage is a double-edged sword. While it can greatly amplify one's profits, it can also dramatically amplify their losses. Trading CFDs with any amount of leverage may not be suitable for all investors.
CFD trading comes with low fees. When buying, a trader pays the ask price. When selling or taking a short position, a trader pays the bid price. The spread between these two is generally fixed, and its size depends on the volatility of the underlying asset.
When trading CFDs, investors are not obligated to pay a stamp duty, because these contracts are a type of derivative. As a result, investors that opt to trade CFDs may avoid the generating the tax liability they would incur by trading other securities. Investors should keep in mind that tax laws can change. Because every trader has unique circumstances, they may want to speak with an appropriate tax professional to get clarity on any questions.
Another benefit of CFDs is that these securities trade 24 hours a day, five days a week. Even if an underlying markets is closed – the stock market, for example – an investor can still trade CFDs based on major stock market indices.
While CFDs offer investors all the benefits associated with owning a security without actually having to possess it, they also come with all the risks associated with holding that security. CFD Trading offers traders the ability to use significant amounts of leverage, but leverage can dramatically amplify losses.
We're a leading provider of not only forex, but also CFDs, which means trading with us will provide access to benefits that only a top broker can provide. These include:
Additionally, you can trade on our proprietary Trading Station, one of the most innovative trading platforms in the market. Open a free forex demo account to start practicing forex and CFD trading today.
Leverage: Leverage is a double-edged sword and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange/CFDs with any level of leverage may not be suitable for all investors.
