Contracts for difference are extremely popular options for traders who hope to maximise their profits while mitigating many of the risks that would otherwise be present in positions with high market exposure. The basic principle behind any CFD trade is that the investor is concerned about the movement of the underlying asset in either direction; up or down. Thus, even adverse market conditions have the potential to yield significant amounts of profit. What are some of the other reasons why contracts for difference can be excellent ways to increase one’s net worth?
A Range of Financial Markets
Unlike a position in a single commodity or index, contracts for difference provide a wide spectrum of different opportunities. Some of these include (but are certainly not limited to):
- Stocks and equities
- Commodities such as oil and natural gas
- Precious metals
- The indices themselves
One of the lesser-known benefits in the United Kingdom revolves around the taxation advantages that CFDs offer. Those who may be holding wealth in physical shares can sell off their CFD positions against the shares without worrying about an additional capital gains tax. This could even help to reduce one’s overall tax liability.
Another way to accrue wealth is to utilise CFD holdings as a way to protect long-term positions against any perceived market volatility. In other words, purchasing shares on a contract for difference could very well be cheaper than buying them on the open market, selling them and buying them back at a later date. Not only could the latter method take a great deal of time, but the short-term nature of CFDs can help one to maintain a more liquid position.
Effective Trading Platforms
Above all, trading CFDs can be quick and simple with the use of efficient trading systems such as those offered at CMC Markets. Not only will greater amounts of transparency be provided, but investors can keep ahead of all of the latest news while enjoying advice from professionals in the industry.
Leveraging is another common instrument to maximise an existing profit margin. In essence, a leverage is a situation when the trader is only obliged to pay a portion of the total cost of the position. In this manner, any gains can be vastly magnified. This can be very attractive in terms of a short-term (and high-yield) profit. Although the ROI can be extremely high, a pear-shaped trade can just as easily enhance one’s losses. An investor may very well be liable for much more than he or she had initially committed. So, always approach leverages with caution.
CFDs can be used as a standalone means to build wealth while they are just as effective to be used alongside other assets such as physical holdings in commodities and shares.