Contracts for difference: CFD trading is on the rise
The recent economic crisis affected different people in different ways
. Whilst many businesses suffered from the lack of credit facilities and tightened consumer purse-strings, those with mortgages and other credit facilities reaped the benefits of rock-bottom interest rates. Indeed, where there are losers there almost always are winners too.If we are to take any positives from the economic downturn, one would perhaps be that people are keener than ever to watch every penny and have a greater degree of control of their financial wheelings and dealings. With interest rates unlikely to rise anytime soon, now could be a good time for private investors to look to the markets rather than having money sitting gathering dust in a bank account.
Contracts for difference (CFDs), for example, are enjoying somewhat of a surge in popularity amongst private traders and investors, due to the flexibility they offer traders to go long' and short', leverage their trades and hedge their current positions at a much lower cost than traditional share trading.
Crucially, the economic crisis may also mean it's boom time for CFDs and other similar products, given that they are geared towards the private trader who are looking to manage their own investments. Moreover, many more people are taking more of an interest in the stock markets now and this increased awareness could well be what's helping drive the increase in trading CFD derivatives.
Similar to spread betting, CFD trading allows investors to take full advantage of price fluctuations without ever actually owning the underlying asset, which means no stamp duty and other capital requirements.
Around a third of all transactions on the London Stock Exchange are CFD related and nearly every UK bank caters for CFD trading now: CFDs are big business.
The old adage that you have to speculate to accumulate may be somewhat of a clich in financial circles, but for CFDs, it is a sentiment worth considering. One of the key inherent benefits offered by CFDs is leverage which, as any amateur financial analyst will know, enables traders to maximise their exposure in a particular trade whilst reducing the size of the actual investment. Thus, trading speculatively with CFDs can significantly increase a person's financial gains but if things go wrong, it can enhance their losses too.
The one common aspect of speculative trades is that they're normally based on news announcements and other significant market events, this could be anything from a government releasing unemployment figures or other economic data, to a corporation announcing its quarterly profit/loss figures.
It's for this reason that most speculative trades are short-term, where the investor spends as little time as possible in the trade, reaping the rewards of any momentary price-shift that the market event caused.
It's probably also worth noting that speculative doesn't mean betting blindly, there are a myriad of analysts and economists who try and determine in advance what the news will be and how it may affect the markets. Naturally, opinions will differ, but examining a spectrum of opinion can help inform speculative CFD trading, making it a very worthwhile investment opportunity for those looking to make the most of their money.
Contracts for difference: CFD trading is on the rise
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