Things you should know about CFD TradingBy Sergey | 11 March 2010, 10:55 BST
There are various types of trading in market today. Contract for Difference is one of the popular ones. It means mutual agreement between CFD Company or the broker and the client who is actually an individual trader. In case of CFD trading the agreement is to exchange the difference between the price of a share at the time of the opening and at the time of the closing of the same share. CFD is considered to be beneficial in all situations except one wherein the markets are rising. Major characteristic of CFD trading is that in this type of trading, the investor does not own the share. There is no purchase or sale of shares involved. This is the main reason why falling market does not impact the investor negatively. Another advantage for CFD Traders is that traders can actually purchase the right to buy or sell a contracted amount of shares on a certain price for a pre – determined period of time. It is totally as per the wish of the traders. The benefit involved in this is that instead of giving the full amount to the CFD Company, the trader has to give only the margin for the bet as a deposit amount. Hence, it turns out be a comparatively small amount.
Unlike in conventional investments, CFD Trading does not require the investor to actually purchase the asset. This means less liability for the investor. Hence, a trader in this case can hold more investments. CFD basically mirrors the image and performance of a particular asset, commodity or index. This is an advantage to the investors as they are not captivating their investments. However, apart from the advantages mentioned above, there is the biggest advantage that exists. In case of Contract for difference trading, if the trader owns a CFD Share at the time of company’s dividend pay out, he is eligible to get a share from the dividend pay out as well. So, the unique feature or advantage of being a CFD trader is that there can be an opportunity to earn dividend which is over and above normal earnings. People with long term investments plan should invest in CFD trading. Long term maintenance of CFD account also means additional charges however when someone earns profits and dividend, at the end of the day the person remains in plus account even after paying charges.
CFD Trading is presently taking place in UK, Netherlands, Switzerland, Germany, Italy, Singapore, South Africa, Australia, Canada, New Zealand, Sweden, France, Ireland, Japan and Spain. Hong Kong has plans to start this trade as well. It is important to notice that CFD Trading is not allowed in United States of America due to restrictions by United States Securities and Exchange Commission on over the counter financial instruments. It is advisable that when someone starts indulging in to CFD trading they should get a reliable broker for themselves. Getting a broker should be done wisely if someone wants to earn profit through this type of trading.
Source: CFD Trading Guide