A CFD gives European investors and traders the unique opportunity to profit from certain price movements without owning the particular underlying asset.
The CFD trade is realized via a contract between a broker and their client. This type of trade does not utilize any forex, stock, futures exchange, or commodity. On the other hand, few people know that they can rely on a Forex broker in order to trade CFDs on gold, silver, oil, gas, corn, coffee, etc.
Therefore, in the following lines, we’ll present to you some of the things that you should know about CFDs and Forex brokers!
The Benefits of CFD Trading
- Higher Leverage – overall, CFDs come with higher leverage than your usual, traditional trading. At the moment, standard CFD leverage is limited – in a range of 3% that can go up to 50%. Even though higher leverage means lower margin requirements – which translates to less capital outlay – it can also cause an increase in losses.
- Global Market Access – CFD brokers, including Forex brokers, offer products in all the major markets of the world. This is why you can, as mentioned trade CFD even on corn and coffee.
- Trading Opportunities – at the moment, brokers provide index, stock, currency, treasury, commodity, and sector CFDs. Because of this, speculators can trade CFDs instead of engaging in exchanges, no matter what their financial vehicles are.
- Professional Execution – CFD brokers come with many order types, including contingent orders, limits, and stops. On top of that, there are also brokers that offer guaranteed stops. It is also known that brokers don’t usually charge fees or commissions, as they make money when a trader pays the spread.
Naturally, CFDs come with downsides as well. It was expected, especially given the fact that they are a direct alternative to exchanges and help traders avoid the fees/charges implies by the mentioned exchanges.
- The main downside would be that the traders must pay the spread. This means that, as a trader, you’ll have to think twice before engaging in small moves, as you have to pay both the entry and exit spread. The latter also increases losses by a very small amount and decreases winning trades by, once again, a rather small amount.
- Moreover, you also expose yourself to a number of risks. Given that CFDs are fast-moving, you can expect liquidity risks as well as margins that you need to manage. Like any other trading option, CFDs are not risk-free and have to be properly managed in order to maintain profits.
The Bottom Line
Overall, a CFD broker is an intermediary between the traders and the market that provides the former with a trading platform and with the necessary services to engage in trading.
Such brokers are the main way through which a trader can avoid exchanges and their downsides. Even though CFD trading comes with its own risks, this action can be much more profitable if the trader uses a CFD broker.
On top of that, with the proper CFD broker, you can trade your CFDs on a variety of popular and reputable platforms – such as the MetaTrader 4 and the NetTradeX platform. This means that you can use CFDs to make a profit from almost any type of asset at an appealing value!