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If you are a private trader or an aspiring trader and thinking about trading Forex and CFDs, you’re already on the right track. These two make a really great investment for traders such as yourself and the why of it will be discussed on here.
How it Works
Private traders that are looking to get some CFD and Forex trading action will want to know how it works. The good news is that how it works is really simple which means you can decide if it is for you or not. The first step is that a finance broker and a trader come to an agreement. In this scenario, the trader believes that the financial market value will increase. Visit this site for more information.
As a duo, they open a position and buy CFDs on the market. They decide to “go long” which means if there is an increase in the price of the underlying asset, the trader takes home a profit. Should the trader predict a decrease in the asset value, they “go short” or sell CFDs.
On the other hand, should the trader get it wrong in his prediction, both of them will have to go home with losses. Its important to remember here that the loss or profit they make is relative to the difference between the asset price set at the start of the contact. It also takes into account the end price.
Advantages to Forex and CFDs
There are not enough words to say that the CFD and Forex market just has loads of incentives and advantages for traders. Have a look at some of the pros for Forex and CFDs trading below:
- You only need one account to trade both CFDs and Forex. This means you gain access to all sorts of markets with just one platform that saves you a lot of time and effort.
- There is a lot of leverage in this type of trading. A CFD is considered a leveraged financial instrument. This means you are tasked to deposit only a percentage of the sum trade value. Known as an “initial margin”, this allows the trader to trade bigger and get exposed to larger potential profits. All because the exposure of the initial deposited amounts gets magnified.
- The ability to go short. A CFD allows private traders more flexibility when compared to commodities, shares etc. When trading Forex and CFDs, even a failing market has the potential to become a positive trading opportunity. But what is the motivation for selling short? When you predict that the prices for assets will decrease, this enables you to buy back at lower prices and make a profit.
- No stamp duties is another benefit since these are designed to track underlying markets. For example, if you buy CFDs on Disney+ shares, you don’t own its shares or invest in the company. You are merely speculating on prices fluctuations. If you are investing in traditional shares in the UK, you will have to pay .5% for holding assets of that company.