Prospects of the CFD market: Pros and cons
The Future of the CFD Market
The CFD market keeps on gaining popularity among specialist investors and traders. In Europe, many wise traders use CFDs, because they allow them to do high frequency stock dealing, at a fraction of the cost of actual stock dealing. Moreover, CFDs offer superior price linearity, when compared to Futures or other alternative instruments for trading stocks. In any case, CFDs are superior to both spread betting and Futures trading, and also allow you to short US stocks, even when there are short selling restrictions imposed. That’s a massive benefit of CFDs, and US traders don’t have it, because CFDs are not yet allowed in the US, due to the current regulation. In other words, Europeans and Asian traders have more flexibility and more benefits when it comes to trading. The prospects of the CFD market are very good, and despite the fact that they are less known than binary options, they can be just as useful. You can learn how to trade CFDs, but almost nobody will tell you that CFDs actually have superior liquidity, superior linearity, and are immune to short selling restrictions. Investor Greg believes that these are the hidden most valuable benefits of CFDs. Just like binary options have their own hidden benefits. Other wise investors have similar findings, while the majority of traders out there may have wrong impressions, or they may think CFDs are just another form of leveraged trading instruments. Because leverage is used by brokers, so as to make trading look more affordable. The real benefits however are less obvious, and are not about leverage.
Why Most People will Guide You Wrong in Choosing Trading Instruments
Most people are focused on one thing only, and lack imagination when it comes to complicated trading strategies. They will simply tell you that CFDs offer high leverage, and that binary options offer limited risk. But there’s so much more to both of these trading instruments, much more than one can imagine. In fact CFD trades can be used to implement cost-effective hedging trades on two different stocks, as long as these two stocks have similar Beta factor. In countries where binary options are not available, and you cannot hedge risk through good binary trades, CFDs can provide an alternative solution. But because they are linear, you will have to use two different markets, such as two different stocks, of similar Beta factor, and look at divergence convergence patterns, and mean reversion patterns. This means you can buy one stock, through CFDs, while selling the other stock. And achieve an overall trade whose profit/risk profile is more beneficial. You cannot do this with Futures or spread betting, because trade price does not linearly follow the price of the actual stock. Therefore the prospects of the CFD market are very powerful and little understood. People who ask what is CFD trading, and how it is better, need to investigate linearity and liquidity in all trading instruments, and see how CFDs are superior. CFD trading will increase further, as more and more stock traders and commodity traders look for ways to enhance their stock dealing, without high dealing costs, and with efficient market exposure. The method of trading two similar stocks, in a convergence – divergence strategy, is just one method which can only work with CFD trades. There are many more trading ideas where again CFDs make them possible to implement.