A share CFD, short for Contract for Difference, is a type of financial product by which the trader speculates at any time about price movements in the share, irrespective of which way it goes – up or down. The share CFD presents an attractive option to those people who want to take profits from fluctuations in the stock market without having to own the underlying shares. This implies that the benefit is derived from exploiting market fluctuations without having to venture out and buy or sell the physical shares. This makes it feasible for both the novice and seasoned trader to participate in the stock market with comparatively low entrance barriers.
One of the most critical ways that share CFDs grant the freedom to the traders is trading both ways. In traditional stock trade, a profit is only possible if the share price increases. However with share CFDs, you can enter long position-buying regardless of whether you think that the company share will go up or enter a short selling position if you anticipate the shares are going to fall. The ability to gain on both upward and downward movements means that traders are much more flexible, especially in volatile or bearish markets where traditional stock traders might face a great challenge.
Another main advantage of share CFDs is the use of leverage. Leverage allows traders to control a larger position than their initial investment by borrowing funds from the broker. For example, if the leverage ratio is 10:1, a trader can control $10,000 with just $1,000 in one’s account. This increases the possibility of higher profits because even the slightest price movements can have significant returns, whereas leverage brings greater risk. The same is true regarding losses; although profits can be magnified, the market may swing against a position as well, which is why risk management is very important for traders who use leverage.
The fact that a trader can access share CFDs also allows for trading in many markets. Investors can now trade shares from anywhere in the world, and investors are not limited to local stocks or shares. This creates more avenues, especially for traders who want to diversify their portfolios and take advantage of the boom in international markets. From technology stocks in the U.S. to energy companies in Europe, share CFDs enable traders to bet on all trends in the global markets without having to bother with the problems of physically holding shares.
Share CFDs are also easy to trade. The majority of brokers provide traders with real-time charts analysis tools and resources which can be useful in selecting proper decisions. For first-time share CFD users, most of the brokers even offer demo accounts where the traders can first practice using virtual money before risking their hard-earned cash.
Finally, share CFDs enable each trader to make money from both an upward and a downward movement of the markets. Share CFDs can be a very effective tool for any trader interested in making money using the constantly evolving nature of the stock market by leveraging on international trading and price speculation.
Kathie