Higher Leverage

CFDs offer higher leverage than traditional trading.6 Standard leverage in the CFD market is regulated. Previously it only had a 2% maintenance margin (50: 1 lever), now it is limited in a 3% range (30: 1 lever) and could be up to 50% (2: 1 lever) forex trading platforms in India. Lower margin requirements mean less capital outlay for the trader and higher potential returns. However, higher leverage can also increase a trader's losses.


Access to the Global Market From One Platform

Many CFD brokers offer products in the main markets of the world and allow access 24 hours a day. Investors can trade CFDs on a wide variety of markets around the world.

No Short Sale Rules or Loan Inventory

Certain markets have rules prohibiting short selling, requiring the trader to borrow the instrument before selling short, or different margin requirements for short and long positions. CFD instruments can be cut at any time without borrowing costs, as the trader does not own the underlying asset.

Professional Execution Without Fees

CFD brokers offer many of the same order types as traditional brokers, including stops, limits, and conditional orders, e.g. Eg B. "one cancels the other" and "if done". Some brokers that offer guaranteed stops charge a fee for the service or offset the cost. Brokers make money when the trader pays the spread foreign exchange market today. From time to time they charge commissions or fees. To buy, a merchant must pay the offer price and to sell / sell, the merchant must pay the offer price. This spread can be small or large depending on the volatility of the underlying. Fixed spreads are usually available.

No Intraday Trading Requirements

Certain markets require a minimum capital for daily operations or limit the number of daily operations that can be performed on certain accounts. The CFD market is not subject to these restrictions and best broker in India for forex all account holders can trade on a day-to-day basis if they wish. Often times, accounts can be opened for as little as $ 1,000, although $ 2,000 and $ 5,000 are common minimum deposit requirements.

Variety of Business Opportunities

Brokers currently offer CFDs on stocks, indices, treasury, currencies, sectors and commodities. This allows speculators interested in various financial instruments to trade CFDs as an alternative to exchanges.

Disadvantages of CFDs

Traders pay the spread

While CFDs offer an attractive alternative to traditional markets, they also present potential pitfalls. On the one hand, paying the gap for inputs and outputs eliminates the possibility of benefiting from small movements The spread also reduces winning trades by a small amount against the underlying security and increases losses by a small amount. While traditional markets expose traders to higher fees, regulations, commissions, and capital requirements, CFDs reduce traders' profits through distribution costs.


Bad Industry Regulation

The CFD industry is not highly regulated. The credibility of a CFD broker is based on reputation, longevity and financial position rather than on the reputation or liquidity of the government. There are some excellent CFD brokers, but it is important to do some basic research on any broker before opening an account.

Risks

CFD trading evolves quickly and requires close monitoring. Therefore, traders should be aware of the significant risks involved in CFD trading. There are liquidity and margin risks that you must maintain. If you don't hedge the depreciation, your provider may close your position and you will have to recoup the loss regardless of what happens next to the underlying asset  about foreign exchange market you. The risks of leverage expose you to higher potential gains, but also higher potential losses. Although stop loss limits are available from many CFD providers, they cannot guarantee that you will not incur losses, especially if there is a market close or sudden price movement. Execution risks can also arise due to business delays.

CFD Trading Example

For example, suppose a stock has a selling price of $ 25.26 and the trader buys 100 shares. The cost of the transaction is $ 2,526 (plus commissions and fees). This trade requires a minimum of $ 1263 in free cash with a traditional broker on a 50% margin account, while a CFD broker only requires a 5% margin or $ 126.30. A CFD transaction has a loss equal to the size of the spread at the time of the transaction. If the spread is 0.05 cents, the stock must earn 0.05 cents for the position to break even. While you would make a profit of $ 0.05 if you owned the shares in full, you would also have paid a commission and created a larger down payment.

Contact us