You may know that the obvious advantage of using contracts for difference (CFDs) for trading is the amount of leverage you can enjoy. Typically, depending on the market, you may need a margin of only 5% or 10% to command and control the underlying financial security. This explains the popularity of the CFD derivative amongst traders.
Against this, as a margined product your account will be charged daily interest, but if you also trade short positions you will find you receive some of that interest back. As an active trader, you may not be in any one position long enough to be significantly impacted by the interest charged.
But another great advantage of using CFDs in your trading plan is that you can have one-stop shopping, regardless of where your interests lie or are led. Most CFD dealers can give you a large range of choices of what the underlying financial security is. Unlike a stockbroker, who may be able to access shares just in the UK or in Europe, the CFD dealer can allow you to trade in a wide variety of objects.
If you wanted to trade in US shares, for instance, you would need a separate account with a US broker. It is not always easy to set up an account in a different country, particularly if you do not have a bank account in that country, as brokers look for this for easy access for funding your trading. Trading is also cloaked in the national financial regulations which can affect how you are allowed to trade as a foreigner.
This is where the choices available from your CFD dealer can make your trading life much simpler. If you want to trade on the Dow Jones Industrial Average, there is a CFD for that, and it is available from your local CFD broker. But the availability goes much further than that. You can also trade on major US stocks, again enjoying the leverage of a CFD while realizing the full gains on these stocks as if you had owned them.
Because these are CFDs, it is as easy for you to go short on US stocks, and you could have used this strategy recently to profit from the economic decline. In fact, CFDs allow you to have exposure to the global stock markets, and you can follow them with index tracking CFDs or at an individual share level.
In a way that is not available with traditional brokers, with CFDs you have access to whichever markets interest you and seem to have the best possibility of trading profits, and this can be achieved with just one account. There are no exchange fees when you trade CFDs, and they also eliminate many of the inefficiencies of trading the underlying shares. For UK taxpayers, you have never owned the shares and therefore you will not be assessed capital gains. You also avoid any stamp duty which would arise out of share ownership. CFDs offer you an ideal way to expand your trading horizons and access the best opportunities.
