While daily trading volumes may have declined slightly since the Great Recession, the evolution of the financial marketplace has ensured that even volatile entities such as the foreign exchange remain surprisingly active.
This is largely thanks to trading vehicles such as contracts for difference (CFDs), which enables investors to minimise risk and pursue profits even in a depreciating marketplace. Essentially, they allow investors to speculate on whether or not the price of an asset will rise or fall, as they trade the difference between the starting price of the financial instrument and its end value.
Below, we will look at core advantages of CFD trading, and ask why you should consider using this vehicle:
- Increase Your Margins
To begin with, CFDs are extremely tax-efficient, as they are free from capital gains tax and stamp duty. This reduces the cost of executing trades, providing a boost to your margin as a result.
The derivative nature of CFDs also improves your margin as a trader, as you can achieve profits far in excess of your original investment. This is because you are not tied to the value of a fixed asset class at any stage of the trading cycle.
- Relieve the Burden of Ownership
Not only does the derivative nature of CFDs increase your potential gains, but it also offers traders tremendous flexibility in their chosen marketplace.
Most importantly, they can choose to either hedge against specific assets or speculate that their value will increase, depending on the precise economic climate and core market conditions. In this respect, they can leverage any macroeconomic conditions to their advantage, and profit even in a depreciating marketplace.
This is extremely important, as it makes it possible to optimise gains throughout the financial year.
- Access numerous Asset Classes
As CFD trading has become increasingly popular, it has evolved to offer access to numerous markets and thousands of potential asset classes.
This is particularly true when you trade through an online forex broker, with the market leaders offering low-cost CFD trading across a diverse range of instruments.
As a result of this, CFD traders can build varied and low-risk portfolios over time, as they look to increase gains regardless of the prevailing, macroeconomic climate.