Forex Trading - Regular or CFDs?
The daily foreign exchange market is worth more than 5 trillion US dollars, so trading methods abound. Difference contract (CFD) is a less common but increasingly popular variant.
CFDs have many benefits for investors, but are sometimes misinterpreted. This is a quick introduction to the fundamentals of forex cfd.
Introduction to CFDs
As the name suggests, CFDs do not depend on the value of the trading asset, but on the difference in value between two points in time. Since only changes in value are related to calculations, investors can buy CFDs even if they believe that the value of CFDs will be devalued. This is different from the effective purchase of assets, which aims to sell assets at a higher price.
In essence, this separates investors and brokers from the realm of stock exchanges, foreign exchange or futures. Regardless of the real market in the parallel financial zone, the transaction will be completed. Investors will never own the underlying assets, regardless of their value. Because of this unrelated and poorly regulated trading model, many countries do not allow the use of CFDs.
The remuneration obtained to facilitate the purchase and sale of assets of any value is the spread charged by the broker. This means that small movements in the desired direction can be eliminated and even lead to insufficient CFD trading.
Why choose CFD?
One of the main advantages mentioned by investors in foreign exchange CFDs is that they obtain greater leverage compared to conventional foreign exchange transactions. In this way, they can enter the market with only 2% profit margin (50: 1 leverage), which means that the capital expenditure is small, but greater returns are possible.
In addition, mature foreign exchange companies allow you to open a CFD trading account with a higher investment limit, thereby providing greater trading flexibility.
Due to the economic recession caused by the coronavirus, the international money market has undergone considerable changes.