What is CFD trading?
CFD trading or the Contract for Difference trading is a trading method that has been derived from the traditional trading practices. In a CFD trading, traders receive a contract. The contract is not a possession certificate of the underlying assets, rather it certifies that traders who possess it have the right to receive the total difference that arises between the present value of the asset and its value in the future. If however, the value of asset diminishes, then the trader will have to bear the losses incurred. Like all trading practices, CFD trading also enables traders to:
- Speculate the rise and fall of asset value in the financial market
- Trade with multiple assets such as commodities, forex, shares, currencies including cryptocurrencies, indices, treasuries, and more
However, chances do exist where traders may or may not face a partial or a complete loss of the invested amount on the trader’s assets when trading using the CFD method. Thus, discretion is advised while trading with your financial assets and it is also recommended to trade or invest in an amount that you can only afford to lose through the CFD trading.
What is the traditional way of trading?
The traditional way of trading on an exchange involves the physical presence of the traders and the stockbrokers to buy and sell assets.
Differentiation between CFD and traditional trading:
Here are some very basic differences between a CFD trading and a traditional trading carried out on an exchange platform:
- Day traders who want to enter a trade position and exit from it quickly prefer CFD trading. However, traditional trading on an exchange is the preferred style of trading for traders who do not wish to exit a trade position soon but would like to monitor the trend of their asset and then make a decision.
- In CFD trading, bonuses are a means to earn an additional margin for an increase in the total order volume increase. However, bonuses obtained when trading using CFD cannot be used a leverage and can neither be withdrawn as against the rules while trading the conventional way on an exchange.
Thus, it can be concluded that both CFD trading and traditional trading on an exchange are both equally good, as both methods of trading are known to produce excellent trading results. However, the choice of whether to trade via CFD trading or on an exchange will depend on the trader’s trading preferences and comfort. Read the complete article on Crypto CFD Trader review to know whether CFD trading is the ideal way of trading for you.