Why Trade CFDs?
CFDs (contracts for difference) are a form of derivatives which allow traders to speculate on the price changes of various financial assets, such as forex pairs, stocks, commodities, indices, and even cryptocurrencies. CFD traders are under no obligation to own the underlying asset they are trading; they only speculate on their price movement. CFDs are standardized and regulated investment products that give investors full control of their trade positions. Additionally, there are no liquidity concerns when trading CFDs, guaranteeing traders faster execution, practically at all times.
As derivatives, CFDs are highly leveraged products. This means that investors only need to place a small margin capital to control a much larger trade position in the market. This also implies that even a slight price change in an underlying asset can yield huge profits.
Leverage is primarily one of the reasons why CFD trading has grown in popularity among both retail and institutional investors. There is virtually a massive opportunity to earn a big profit on a small capital outlay. Particularly, for retail investors, CFD trading represents a way to trade the lucrative financial markets without tying up big money. But while leverage can amplify your potential profits, it remains a double-edged sword. A wrong price forecast will also result in bigger losses. Essentially, underlying market risks exist on an even bigger scale in the CFD market. Such risks have always informed the guidelines on regulation of the industry. Regulatory agencies require that CFD brokers openly inform retail traders of the risks involved when trading financial products on leverage. At SUMMIT TRADE Co., we have taken it upon ourselves to create awareness on the importance of risk management when trading CFDs on leverage.
As part of our all-inclusive services, there are plenty of risk management tools on all our platforms to help traders stay in control of their trading activities at all times. In addition, there are numerous educational materials available in our education center that discuss how to develop practical money management plans and strategies.
When trading CFDs, money is made out of asset price movements. Just as their name suggests, a CFD trade is a contract between a trader and the broker for the price difference from the time a trade position is opened until the moment it is closed. A positive price difference is when the price moves according to your prediction, while a negative difference is when the price moves opposite to your forecast. The amount of profit or loss you incur depends on how far the exit price is from the entry price; the wider the difference, the bigger the profits or losses. Unlike other traditional markets, such as futures or options, CFDs have neither expiry dates (you can keep your trades for as long as you desire) nor minimum position sizes (you can trade with as much or as little as you wish).
CFDs exist for virtually any type of financial asset. At SUMMIT TRADE Co., you can trade CFDs for currency pairs such as the EURUSD pair, stocks such as Apple, indices such as UK 100, commodities such as gold, and cryptocurrencies such as Bitcoin.
When you click on any financial asset on any of our trading platforms, you will view all trading conditions associated with it. This includes the leverage and margin requirements as well as trading cost information, such as prevailing spreads and swaps. When you open a trade, you will be able to adjust trading details, such as position sizes and investment amounts.
CFDs brokers, such as SUMMIT TRADE Co., provide the gateway to financial assets trading as there are no exchanges involved. This allows for easier opening and closing of trade positions. The biggest risk when trading CFDs is price volatility. As inherently leveraged products, sudden price surges can lead to catastrophic losses. But this can be mitigated. At SUMMIT TRADE Co., we have guaranteed Stop Loss orders and Take Profit orders, which will be triggered (without fail) when the target price levels are achieved. There are also other unique pending order types, such as Stop and Limit orders that ensure your order is always filled at your pre-determined price level.
Whether you are a new or experienced trader, SUMMIT TRADE Co., ensures that you are able to maximize the potential profits of your trade positions while simultaneously limiting your risk exposure.
Compared to other financial markets, CFDs offer far more advantages to any type of investor. As a case, consider an investor with $1,000 in trading capital. If the stock of, say Apple, is trading at $100 a share, the investor will be able to acquire 10 shares through a stock brokerage company. If the stock rises by 10% or $10, the investor will earn a profit of $100 (10*$10). With a CFD broker, like SUMMIT TRADE Co., offering a leverage of 1:100, the investor will be able to control a trade position of $100,000. This will mean that they will be able to buy 1000 Apple stock CFDs. A similar 10% stock rise will earn the investor a profit of $10,000 (1000*$10).
Aside from leverage, there are also other benefits of trading CFDs, such as instant execution, ultra-low trading costs, trading rising and falling markets, as well as a wide range of available tradable financial assets.