Why Should I trade a CFD (Contract for a Difference)?

Submitted by Stock Market News on 26 May, 2011 - 15:50

Advantages of CFD

In a nutshell, CFD is an arrangement in a futures contract wherein the difference is settled through cash payments. The difference is determined by the underlying share, index or commodity. The two main advantages of trading CFD is leverage and its ability to go ''short''.

CFD enables traders to get the full benefits of an underlying financial instrument for a fraction of a price. In ASX, traders are only required to pay a small margin to to be able to secure a trade. More importantly they are able to take advantage of a change in the price of the underlying commodity without having to pay it in full.

Since traders can obtain the full benefit of an underlying commodity without actually owning it, they can sell commodities even when the market is down.

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