CFDs or Contract for Difference is an agreement between two parties (the buyers and the seller). It is their agreement to exchange the difference in current value of the financial instrument and also its value at the time of the contract. If it is negative, the buyer will pay the difference amount to the seller. And if it is positive, the seller will pay the buyer. Trading CFDs is simple and much like normal dealing of shares. The difference between trading CFDs and normal share dealing is that the first offers greater flexibility than the latter.

There are many options available for investors today for making investments. CFD trading, however, is considered as an alternative option to normal share dealing. As a source of investment, it opens up new horizons to many trading opportunities. Trading CFDs can help you make the most of your investment capital.

There are many day traders today who are beginning to trade CFDs. For investors, this allows them to make accurate predictions of prices either in long or short positions. It was in 1990’s when CFD trading started in England and it was based on equity swaps. CFDs, originally, were not taxed. This adds to the benefits.

So how does CFDs work? It works by initiating a contract between the investor and the CFD provider. Traders start through a specific instrument that goes through the provider of the CFD, creating a position. They don’t expire but they close once the other trade is completed. The difference is then paid either as profit or loss. The provider can alter the trade as part of the deal with a commission or fees that are applicable to the trade. Though these trades don’t expire, they can be rolled over if they have positions not closed overnight.

CFD trading is like gambling on the market in a way. If an investor accurately predicted the trade and made a smart decision, he will surely gain a lot. This is the reason why CFDs are fast becoming popular among day traders who are looking to boost their income.

Below are the main advantages of CFD trading

Time Adjustment

This is one of the most important advantages of trading CFDs. You can go as long and short as you want with CFD trading. You can opt for short time frames or continue trading for longer time. It all depends on you. The growth remains almost consistent.

Day Trading

Investors have the option to do day trading which is good because they don’t have to pay the overnight interest cost. This also protect them from overnight risk of stocks.

More Profits in Less Time

CFD trading allows investors to make more profits with small floats. They can magnify returns to up to 10 times as CFD brokers provide 10 to 1 or 20 to 1 leverage. But of course, for you to make big profit, you need to have good CFD system. You also need full knowledge about CFD trading. Without those, you’ll lose more.

These are just few of the many advantages of trading CFDs. Learn more about CFDs and CFD trading by visiting CMC Markets.