Online CFD trading has grown to be a very popular choice for traders all over the world. It's one of the most popular alternatives to the traditional share trading method for quite a good number of reasons. Some of them are:
- Instant access to thousands of markets
- No stamp duty
- Go long or short
Let's discuss these in detail.
No stamp duty in online CFD trading
In share trading you actually own the asset but in online CFD trading you don't actually own the asset. Therefore, you don't need to pay the stamp duty for owning the asset which otherwise had to be paid with share trading.
When you deal with traditional share trading, you have to pay the full value of the shares you wish to purchase. For example, if you want to purchase $10,000 worth of shares for a company, you need to deposit the full amount i.e. $10,000.
But CFD trading is leveraged trading and you only have to put down a small fraction of the total value of the trade to get the exposure to full trade. For example many CFD brokers allow you to deposit only 1 percent of the total value of the trade as the margin money.
Thus online CFD trading allows you to get the benefit of multiplied potential profits from a small amount of margin money. Those traders who do not have the sufficient funds to put a trade can enjoy the benefit from leveraging. But it has to be noted that leverage multiplies your potential losses too and if the loss occurs you loss all your invested money or much more. That is why it is recommended not to use leverage to a great extent.
Ability to go long and short
In the conventional share trading method, you can take only long position expecting the shares to rise. But in online CFD trading, you take a position on the value of the underlying asset in any of the direction of the market, i.e. the prices go up or down. So if you feel that shares of a company will go down, you take a short position which is not possible in the case of actual share trading technique.
The more the underlying asset market moves in the direction you expect, the more you get the benefit but the more it goes against you, the more is the loss associated with it.
Trading in multiple markets
CFD trading allows you to trade in multiple markets without owning any asset actually. CFD brokers today provide access to thousands of markets worldwide whether it is currency trading, share trading, commodity trading or any other. You can trade in multiple markets across the world with just a single CFD trading account.