Just wondering if anyone here trades CFDs? I always find it odd that a lot of people just don't seem to be very interested in CFD, and I can't understand why. If you don't know what CFD is, I copied this from Wikipedia.
A
contract for difference (or
CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an
asset and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller.) For example, when applied to equities, such a contract is an
equity derivative that allows investors to speculate on
share price movements, without the need for ownership of the underlying shares
Contracts for difference allow investors to take
long or
short positions, and unlike
futures contracts have no fixed expiry date, standardised contract or contract size. Trades are conducted on a leveraged basis with
margins typically ranging from 1% to 30% of the notional value for CFDs on leading equities.
To me, CFD offers the following advantage.
* be able to go long (when you predict the market is going up) or short (when you predict the market is going down), allowing you to make money either way.
* hedging
* leveraging
* stop loss (some CFD provider offers guaranteed stop loss, great for volatile market as we're seeing now)
I've had mates argueing CFD is higher risk, while I agree to that, due to leveraging. I believe proper risk control using stop loss (or even guaranteed stop loss) can very much minimise the risk.
