Most people outside of the stock trading community mistake with the understanding of the cfd meaning. Some even have a misconception that it is a form of a gamble for the people in suits. It is a very original form of trading that has been around for a long time. The profit gained is derived from the difference between the price of the opening and closing trade.
What are the good things?
- There is higher leverage than the usual traditional trading and lower margin requirement. This means more profit return.
- It provides the opportunity for traders to function in many other markets from one platform.
- Its instruments can be shored anytime without borrowing costs as the underlying assets are not owned.
What are the drawbacks?
- Due to high leverages, there is a potential higher return, but that also means the possibility of bigger losses.
- It is fast in motion and needs to be monitored closely.
- As it has high stakes and is not regulated, it is banned and termed illegal in many places.
Takeaway for beginner
If one aspires to be a trader and a well-rooted successful one, one must never rush with the process. CFD is something that a trader should approach after much learning and understanding the process.