Trading CFDs differs in a few ways from traditional trading, but what are these differences? In this article we look at the pros and cons of trading CFDs so you can decide if this modern way of trading is for you.
Pros of trading CFDs
- Thanks to leverage you can make a lot of money with a small amount of money.
- CFDs are very flexible, you can adjust things like stop loss and take profit at any time you want to determine your potential profits and limit your losses.
- Trading CFDs can be profitable regardless of the direction of the markets because you can go long or short on a stock.
- Trading CFDs is very cheap, even when you trade with a small amount of money because the fees are related to the size of your order.
- When you start trading CFDs, you can choose from all kinds of instruments from all kinds of countries. You can trade stocks, indices, commodities and Forex.
- CFDs don’t have an expiration date, so you can keep them as long as you want.
Cons of trading CFDs
- High leverage comes with high risks, especially when you use a huge chunk of your balance for a single trade.
- Trading CFDs is meant for trades done within a year; due to financing costs, having a CFD open for a long period of time isn’t profitable.
- Trading CFDs may take up some more time, but there’s a higher potential profit involved.
- Because it’s very easy to open up large trades more frequently, you need proper self-control. A lot of people are motivated by greed and lose their money very quickly because of it.
Do the pros outweigh the cons?
We can definitely say that trading CFDs has its pros and cons. A lot of people feel the pros outweigh the cons. Thanks to the introduction of CFDs, it’s finally possible for beginners to start trading and make money from stocks and currency pairs.