Trading shares, commodities or indices via Contracts for difference provides the same potential for profit or loss, as trading traditional instruments. However, CFDs have some significant advantages. Let’s have a look:
AForex offers its clients to take advantage from leverage up to 1:100 under normal market conditions. Aggressive venturesome traders consider the opportunity to use high leverage as a fundamental advantage of the product. Obviously, leverage increases potential profit, as well as potential loss. Therefore, traders should clearly understand risks involved in such kind of trading.
Actually, you can double your capital or, vice versa, lose it, in case price of an index or a commodity changes by just 1%, while you use maximum available leverage. Therefore, it’s vital that you choose leverage properly and risk only an amount you can afford to lose.
Short sell means selling an asset you don’t possess.It’s especially efficient to carry out these transactions using Contracts for difference.Traders don’t need to borrow shares or commodities and pay for such borrowing.By virtue of CFDs it’s enough just to press the “Sell” button, and after a while to buy the contract back.
Serious traders appreciate Contracts for difference for fast order execution, for guarantee that a transaction will be settled at a chosen moment, for absence oа requotes or any order placement limitations.All these features are available to clients of AForex, thanks to market execution of CFD contracts.
Тraders aiming to minimize investment portfolio risks and willing to monitor interesting ideas in various markets do it with the use of Contracts for difference. Various interrelations (correlations) constantly exist in the markets. And these correlations change permanently. The cases might occur that your favorite currency pair is inactive due to some reasons, moves within a narrow flat channel without any hope that a trend will emerge soon. In such cases it makes sense to consider other currency pairs or even other markets. For instance, stock indices CFDs. Major global investors are permanently busy searching prospective markets and transfer their capitals from one segment to another accordingly. These monetary flows make a chosen market move actively. In order to keep updated in these movements, a trader should continuously monitor all the segments and get involved into trading indices and commodities via Contracts for difference.
Let’s suppose, a trader possesses a deposit of $1000 and wishes to take advantage from oil price increase. Using CFD he can buy up to 9 contracts at the price of 107.35 per a barrel (a contract is 100 barrels, leverage 1:100 allows to open a position of up to $100 000). In case oil price increases to 107.79, and such an increase might occur in just an hour (refer to Picture 1), a trader derives profit of 0.44х100х9 = $396, i.e. almost 40% of his deposit size. This oil grade futures would serve as an alternative to CFD, but futures exchange can provide leverage 1:10 at best. The difference is tenfold as you can see!
Let’s suppose, a trader possesses a deposit of $1000 and foresees depreciation of shares’ prices of US major companies, included in the Dow Jones index.Using CFD he can short sell up to 8 contracts at the price of 12500 (leverage 1:100 allows to open a position of up to $100 000).In case the index falls to 12400, and this might occur within a single trading session, a trader derives profit of 100х8 = $800, i.e. almost 80% as compared to his deposit size.Picture 2).