Advantages and Disadvantages of CFD Trading

Contracts for Difference or CFDs are leveraged instruments that allow investors to participate on the movement of shares and index prices without the need for ownership of the underlying asset. CFDs are available in countries such as The Netherlands, Poland, Portugal, UK, Singapore, Germany, Spain, Switzerland, Italy, South Africa, Canada, New Zealand, Australia, Sweden, Norway, France, Ireland, Japan.

Following are the main advantages of CFDs trading:
1) A key benefit of CFDs is that they are traded on margin, meaning that they provide the trader with leverage.
2) CFD trading is relatively easy to understand and less complex than options.
3) There is no expiry date to a CFD.
4) There is no minimum deal size.
5) No minimum deposit requirement.
6) Convenience: one account for all financial products.
7) Low transaction costs.
8) Receive dividends when long.
9) Short CFD positions will be paid interest.
10) No Stamp Duty.

The disadvantages of CFD trading are:
1) CFDs are higher risk investments than ordinary share trading.
2) Unlike shareholder, CFD trader has no rights to vote at the company meeting since there is no physical ownership of the underlying share.
3) Low capital requirements may lead to over-trading.

* Next: Best CFD Brokers in Australia
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