What are CFDs and Why Should We Trade Them

Contract for Difference or CFDs is a financial instrument that enables traders to trade in the markets that are not as flexible as the Forex market but allows them to practice the same nature of trade and replicate same level of leverage.   

Unfortunately, the Americans cannot use the CFD platform due to many reasons. However, the CFDs offer many solid and great choices and rest of the world is reaping the benefits of this exceptional platform. The idea is very simple, that is, you do not enter a certain market and yet you trade on the price fluctuation of an underlying instrument. Typical Examples are that of CL future contracts or Light Sweet Crude Market that you can easily trade with CFDs market. Therefore, the CFDs help traders to avoid future markets and accompanied requirements that are usually very complex and extremely highly margin.

The greatest advantage of trading with contracts for difference is that you do not require standard size to trade that is totally opposite to most of the future markets. This means that you can trade as much or as lows according to your account limits. This is really helpful for traders that are unable to arrange the necessary margin to trade the standard 1000 barrel contract. As a matter of fact, a trader requires thousands of dollars to acquire the margin and trade one contract. The CFD makes it more reasonable for common everyday trader as it helps him to trade the equivalent of one barrel if you have to.

Even more interesting, you can also replicate the gold and silver markets with contracts for difference. In fact, you can trade in various large indices of the major exchanges across the world with many major stocks with the help of CFDs. Some of these markets include natural gas, crude oil, energy sector and of course gold and silver. You do not need to have huge amount of capital to venture in some of the bigger markets in the world while trading with CFDs and yet you can become a fairly diversified and successful trader.

You actually do not place an order in a particular market with the help of CFDs. What actually happens is that it places a trade in a particular direction on a particular price. The whole phenomenon is very simply as this important task is normally accomplished through a market maker broker and you are compensated by the difference in price from at the time you enter the market.

The contracts for difference allow traders to exit a trade even in the middle of night unlike the future markets and this is perhaps the greatest advantage of this platform. This becomes even more important if you happen to hear a bad news in the middle of the night. If this really happens and you are trading in futures market, a stock can decline considerably and as a result, you might have to loss a trade. The CFDs are operational for 24 hours and you can actually withdraw from a trade long before any catastrophe strikes you.