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Why Trade CFD's

CFDs (Contracts for Difference) allow traders to speculate on the price movements of various financial assets such as currency pairs, stocks, indices, commodities, and even cryptocurrencies. CFD traders seek to benefit from changing prices without owning the underlying financial asset. As well, CFDs are traded without such intricacies as specified lot sizes and contract expiry dates. CFDs are standardised and regulated, and traders are in full control of when they open and close positions, plus they are guaranteed faster execution and there are virtually no liquidity concerns.

The ease of trading CFDs has attracted many investors, who also enjoy the low capital requirements, margin trading, best price execution, as well as other diverse trading opportunities. Despite the simpler process of trading, they still require the same strategies and analysis of traditional trading.

As per their name, CFDs are contracts that traders initiate between themselves and their broker, for the price difference when you open a trade position up to the time you sell or close it. You make money if the difference goes in your favour, but you lose money when the difference is against you. It does not matter whether you buy or sell an underlying asset, you will make money if your price prediction is right. If you go long, you make money if prices go higher; and if you go short, you make money if prices edge lower. Your profit or loss is dependent on how far the price moves from your trade entry point. The further the prices moves, the bigger your profits or losses. CFD contracts do not have expiry times, so you can keep your trade positions open for as long as you desire, however they are typically deemed as short-term investments. There are also no fixed contract sizes, like traditional options and futures markets, so you are free to trade as little or as much as you wish.

You can trade CFDs of just about any financial instrument you want; whether it is forex pairs such as the EURUSD, commodities such as gold, or stocks such as Microsoft and indices such as the Dax 30. With an GMAPros trading account, you effectively have access to virtually all the financial markets around the world.

CFDs are leveraged products, and on the GMAPros platform, you will be able to view the leverage and margin requirements for trading your favourite asset. Just select the asset you wish to trade, and you will be able to add or reduce your trading lot sizes depending on your trading capital balance. It is important to understand how leverage works in order to use it to your benefit and limit the risks.

There are no exchanges involved when trading CFDs, and it is your broker that takes the contract to allow you to quickly open and close trade positions in the market. You do not own or have the obligation to deliver the underlying asset, you are merely speculating on the price changes. The prevailing price of any CFD reflects the live value of the underlying asset. The danger is that during volatile or falling markets, you should be able to exit your open positions with ease.
At GMAPros, we have guaranteed Stop Loss and Take Profit orders that will be automatically triggered when the pre-set price is attained. There are also other practical order types such as Trailing Stops, Limit orders and Buy/Sell Stop orders that will ensure you are always in control of your risk exposure, while retaining the ability to lock in profits as well as protect your trading capital.

For new and inexperienced traders, CFDs provide the chance to trade in an environment where risk can be contained. This is different from trading in the commodities futures market where, for instance, you may be required to purchase a minimum of 1000 barrels of oil or 5000 bushels of wheat. There is no minimum quantity when trading CFDs.

By observing the trends in the financial markets, you can easily understand that CFDs offer more benefits to traders than other investment systems. As an example, let’s say you wish to trade Microsoft stock and your investment capital is $2,000. If the stock is trading at $200 a share, you will be able to buy 10 shares if you are trading via a traditional stockbroker. If the stock appreciates by 10%, or $20, you will have earned a profit of $200. Now, consider that you are trading Microsoft stock CFDs with GMAPros. With a leverage of 1:100, you will be able to buy 1000 shares of Microsoft stock with $2,000. A 10% price jump will earn you a profit of $20*1000 shares, which will be $20,000. This is a hypothetical case, but you may want to limit your risk as well. You may place a Stop Loss order at $195, which if triggered, will have cost you a loss of $5*1000, which will be $5,000. In this case, you will be risking $5000 for a potential profit of $20,000, which is an admirable risk/reward ratio.

When trading CFDs, it is all about risk management and profit enhancement. There are indeed risks involved, but the advantages outweigh the dangers. To learn money management and effective risk management strategies, visit the GMAPros ‘Trading Academy’ section on our website.