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There are many different options available to traders in the UK. One of the most popular choices is CFDs, which offer many advantages over other options. Here are five good reasons to consider trading CFDs.
Check out Saxo Capital Markets for more info on how you can get started trading.
CFDs are a versatile investment tool that can be used in a variety of ways
The primary way that CFDs are used is to speculate on the price movements of financial markets. For example, a trader might believe that the price of gold will rise so they could open a long CFD position accordingly.
But CFDs can also be used for other purposes. For instance, they can be used as a hedging tool to offset exposure to other investments. And they can be used to bring about income through dividend payments.
CFDs offer leverage
Another advantage of CFDs is that they offer leverage, which means traders can control a more prominent position than they would if trading with their capital.
For example, let’s say that a trader has £10,000 in their account and wants to trade the FTSE 100 index. With leverage, they could trade a £100,000 position, which gives them the potential to make much greater profits and losses. It’s important to remember that leverage is a double-edged sword.
CFDs are traded on margin
When you trade CFDs, you only need to put down a minimal deposit – or margin – to control a more prominent position. It is different from other types of trading, where you would need to pay the total value of your investment up front. Let’s say you wanted to buy shares in ABC plc. The current share price is £10, and you want to buy ten shares, which would cost you £100.
Now let’s say that you wanted to trade ABC plc with CFDs. The current price is still £10 per share, but you only need to put down a margin of £5 to trade £50 worth of shares. You can control a more prominent position than buying the shares outright. And it also means that your potential profits – and losses – are magnified.
CFDs are flexible
CFDs are a very flexible investment tool. You can trade them long or short, allowing you to profit from both rising and falling markets.
You can also trade CFDs on various markets, including indices, shares, commodities, forex, etc. And you can trade CFDs with leverage, which gives you the potential to magnify your profits.
CFDs are a popular choice for UK traders
CFDs are a popular choice for UK traders for many reasons. They offer flexibility, leverage, and the ability to trade on a wide range of markets. And because they are traded on margin, you only need to put down a small deposit to control a much more prominent position. If you’re considering trading CFDs, these are five good reasons to consider using them.
What are some risks of trading CFDs?
The main risk of trading CFDs is that you can lose more money than you invest, and this is because of the leverage that is available on CFD trades.
For example, let’s say that you have £1,000 in your account and use leverage to trade a £100,000 position in the FTSE 100 index. The index falls by 1%, which means your position is now worth £99,000. You have lost £1,000 – which is more than your original investment.
Another risk to consider is counterparty risk. The risk is that the other party in the trade – usually your broker – will default on their obligations. While this is rare, it’s something to be aware of.
To sum up, CFDs are a popular choice for UK traders, but there are some risks to consider before trading. Ensure you understand the risks involved and never trade with more money than you can afford to lose.
Conclusion
CFDs are a popular choice for UK traders because they offer flexibility, leverage, and the ability to trade on a wide range of markets. However, some risks to consider before you trade, such as the risk of losing more money than you invest and the risk of counterparty default.
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