The number of investors trading CFDs is steadily increasing because more people are discovering its various advantages over the ordinary buying and selling of stocks or shares through conventional stockbrokers. A CFD, which is short for Contract for Difference, is a financial instrument that allows investors to benefit from the price movements of the underlying shares or instruments. Here are some of the benefits of adding CFDs in your investment portfolio.

Trade on Margin

CFDs are popular because they allow investors to trade or open a position without really putting up the overall value of the trade. In this type of trading, you only have to buy or deposit a small percentage of the total value of the shares to open a position, typically 1 to 20 percent of the contract value. For example, if you want to acquire $100,000 worth of shares, you are only required to deposit anywhere from $1,000 to $20,000, depending on the requirements of your CFD broker.

Since the margin requirements for trading CFDs is lower compared to traditional stock trading, investors not only enjoy less capital outlay, but also greater leveraged returns. However, it must be emphasized that the possible risks on your CFD investment is also big.

Allows Short Trading

Long trades can be easily done with both CFDs and conventional stocks. However, when it comes to short trades, an investor will have an easier time with trading CFDs than with regular stocks. In a short trade, an investor will sell an asset whose price is expected to fall and then buy back the same asset at a much cheaper price. Since major stock markets impose rules that prevent short trading in most instances, you cannot easily short trade your ordinary stocks. The ability to trade short increases the chances of an investor to profit in CFDs even if share prices are falling.

Access to Global Markets

If you choose your CFD platform well, you will be able to trade different types of equities in different countries and in various types of markets. You can opt to trade CFD shares, commodities, bonds, precious metals and even Forex. Furthermore, you will not have any problem switching your investment from one asset class to another.

No Requirement for Day Trading

Since there are virtually no day trading requirements or restrictions in CFD markets, both startup and long time investors like putting their money in this type of financial instrument. In fact, a trader can open an account for as low as $1,000. In other types of markets, however, the minimum capital outlay required for an investor to participate in day trading can be very costly.

Trade Anonymously

Since there is no obligation for anyone to go public when trading CFDs, investors who want to maintain their privacy can benefit from choosing CFD over other types of assets or equities. CFD transactions are typically not published and there is really no need for investors to declare their position even if they are increasing their investments in certain CFDs.

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