Top 5 Benefits of CFD Trading That Makes It Appealing To Traders and Investors

The wide range of advantages brought by CFD trading has attracted several traders and investors across the world. From traders who have set their offices at home to hedge funds and pension funds, a considerable number of traders are purely interested in the advantages that CFD can bring forth.

Leverage/Margin

Without a doubt, the greatest advantage of CFD goes down to leverage and margin. Because CFDs are being traded on margin, it has placed traders in a position that amplifies their exposure to the market. Initially, the margin requirement is about 5% of the loanable amount. That means 95% of the total amount can be loaned from your broker as long as you make the initial deposit of 5%. Actually, it is more like an automatic transaction than being referred to as a typical loan. It is also given in real-time to ensure that gains are of a high amount.

Through leverage, gains become possible even with a short period of time. This draws the attention of traders but using it needs careful consideration because leverage is also known as a double-bladed sword.

Tax Efficiency

It is known that CFDs are more tax-efficient compared to directly trading in the underlying market. Share transactions also require Stamp Duty payment particularly for traders in the UK. This is on top of the Capital Gains Tax than the traders also have to pay. But CFD, is exempted from Stamp Duty as there are no share transactions that are taking place in actuality. Moreover, for tax reasons, traders have the right to deduct the cost of each transaction, therefore, increasing the number of gains and reducing the payable tax.

Flexibility

Flexible instruments – that is what CFD is known about. It allows a trader to take on multiple positions. In case the share market looks bad, the trader can swiftly change into sell-side and still make gains the same as when they are on the buy-side right before the market falls off. Most importantly, traders are given the chance to trade in different markets, even those complex ones like indices. CFD is such a useful tool for trading and managing trading portfolios.

Low Cost

As it turns out, CFDs cost lower than other trading instruments. Aside from those tax advantages previously mentioned, CFD has lower broker fees compared to share broker fees. If you handle your positions before the closing day, you won’t shoulder any additional costs as overnight fees are the only ones that CFD traders have to deal with.

Liquidity

This is somewhat the most important factor to consider when you trade – liquidity. No matter where you trade, you should find a market for your product. As much as possible, find a wider market and something that’s easier for your profits to get realized. A market is tagged as effective based on the terms it follows when delivering a return. As for CFD trading, it has a highly liquid market which means that market movements will get filtered in each CFD transaction.