7 compelling reasons why you need to trade stocks

7 compelling reasons why you need to trade stocks

As a trader, there are many compelling reasons why you need to trade stocks. Whether you’re looking to grow your portfolio or generate income, trading stocks can help you achieve your financial goals. Here are seven reasons why trading stocks is a smart move for traders.

Stocks can offer protection against inflation

Over time, the purchasing power of money declines due to inflation. It can erode the value of savings and fixed income investments, such as bonds. Stocks can offer some protection against inflation. When prices rise, companies typically raise their prices, which leads to higher profits and share prices.


In addition, many companies pay dividends, which provide a source of income that tends to increase with inflation. As a result, stocks can help preserve your investment portfolio’s purchasing power over the long term. For this reason, stocks are often considered a good hedge against inflation.

Stocks provide diversification

A critical aspect of investing is diversification, which means spreading your money across different asset classes to mitigate risk. While there are many ways to achieve diversification, one of the most common is to invest in stocks. When you purchase stocks, you become a partial owner of a company and are entitled to a portion of its profits.


There are thousands of stocks on the market, and investors who trade stocks can spread their money across different companies and fields. As stocks tend to be more volatile than other asset classes, they have a greater potential for providing higher returns over the long term compared to other assets. Combined with having a diversified portfolio, investors can minimize risk and maximise profit potential.

Stocks offer the potential for high capital gains

Another reason to invest in stocks is that they offer the potential for high capital gains. As mentioned, stocks can be quite volatile, with great market movements over the long term. When the price of a stock goes up, you can sell it for profit, and the capital gains you receive are taxed at a lower rate than other forms of income, such as interest.


Long-term capital gains are taxed even lower than short-term capital gains. As such, stocks can be a great way to generate tax-efficient profits all throughout your life.

Stocks can provide income through dividends

In addition to capital gains, stocks can also provide income through dividends. Dividends are payments made by companies to their shareholders out of their profits. They can be paid in cash or shares of stock.


Dividends provide a source of income that can help offset any losses incurred from selling stocks at a lower price than you paid for them. In addition, many investors reinvest their dividends, leading to even higher returns over time.

Stocks are liquid

Stocks are liquid, which means they are available in abundant volumes on the market. They can be quickly bought and sold, making them ideal for investors. High liquidity is favorable in trading as it allows traders to access their money quickly in an emergency. For example, if you invest in a stock and the price decreases, you can sell it immediately and use the proceeds to purchase another investment. This flexibility can help manage your overall investment portfolio.

Stocks are tangible assets

Houses and automobiles are the most common assets that come to mind. However, intangible assets, such as stocks and bonds can be just as valuable. A stock is a share in the ownership of a company, and it represents a claim on the company’s assets and profits. Unlike tangible assets, stocks can also be bought and sold fairly quickly and easily.


As a result, stocks are an essential part of many people’s portfolios. Although the value of stocks can go up and down in the short term, over the long term, they have consistently outperformed other asset classes, such as bonds and gold. Many financial advisers recommend that people invest a portion of their portfolios in stocks.

You don’t have to be a maestro to trade equities effectively

Although you may not need to be an expert to trade stocks successfully, knowing what you’re doing. Many resources help you learn about the stock market, including books, websites, and online courses. You can start trading stocks like a pro with some research and practice.

Can you trade cryptocurrencies in forex?

Can you trade cryptocurrencies in forex?

The short answer to this is: yes, you can trade cryptocurrencies in forex.

Several forex brokers offer cryptocurrency trading pairs, including Bitcoin, Ethereum, Litecoin, and more. You can trade these currencies against each other or traditional fiat currencies like the US dollar. Cryptocurrency trading is generally done on margin, meaning you can trade with leverage.

The forex market is the world’s largest and most liquid marketplace. Bitcoin and other cryptocurrencies have given currency trading an exciting new dimension. Many forex brokers have started to accept bitcoins for currency trading.

Forex trading using Bitcoin

Consider a bitcoin-based forex trade, for example. First, you create a forex trading account with a broker that accepts bitcoins. You then send two bitcoins to the broker’s digital wallet from your digital wallet.

Assume you want to trade $15,000 worth of bitcoins for £7,500 in British pounds at a bitcoin to pound rate of 1 bitcoin = $7,500. Your deposit of 2 bitcoins is worth $15,000. If the exchange rate is GBP0.5 = $1, you will get £7,500 when your position matures.

The GBP/USD rate subsequently drops to 0.45 before resuming its upward trend, and you square off your position to receive $1,666.65 in your trading account after some time has passed. You’ve made a tidy profit of 11.11% and are ready to cash out.

Benefits of forex trading using Bitcoin

Decentralised valuation: One of the most significant benefits of trading bitcoin is that the market isn’t connected to a central bank, nor is it owned or controlled by a single entity. Digital currencies are independent of central geopolitical control and macroeconomic issues like country-specific inflation or interest rates.

The cost of trading is low: To attract new clients, most forex brokers that accept bitcoin keep trading fees very low.

No limitations: There are no worldwide limitations with bitcoin transactions. A trader based in South Africa may trade forex through a UK-based broker. Regulatory issues may still exist, but there are no national boundaries if traders and brokers are prepared to exchange.

Low deposit amount: The minimum deposit amount is usually set at $25, although some bitcoin forex trading firms allow traders to begin with less than that. Some forex trading firms have offered bonuses, including a matching deposit amount. Traders should be sure that the broker is authorised and well-regulated.

Security: You don’t have to reveal your bank account or credit card information when using bitcoin. This is a significant benefit in terms of cost and financial security.

Risks of forex trading using Bitcoin

Varying exchange rates: Bitcoin has a complicated and volatile history, which means its price varies frequently.

Different bitcoin exchange rates: There are numerous bitcoin exchanges, each with its exchange rate. Traders must know which bitcoin exchange rates the forex broker will be utilising.

The importance of a verified trader’s status: Using leverage is dangerous for inexperienced traders who may not know the risk. This risk isn’t just limited to cryptocurrency forex trading, and it also applies to traditional forex trades.

US dollar to bitcoin rate risk: Almost every broker sells the bitcoins received from customers as soon as possible and keeps the money in dollars. Even if a trader does not take a forex trade position right away after receiving bitcoin deposits, they are still exposed to the bitcoin-to-dollar rate risk between deposit and withdrawal.

Bitcoin security risks: Even if you keep your bitcoin in a digital wallet, they are still vulnerable to hacking and theft. Look for a broker that offers insurance protection against theft to minimise this danger.

The final word

Although it is possible to trade cryptocurrencies like bitcoin with forex, there are still numerous hazards. Trading in a decentralised currency with no costs of globalisation is an advantage in forex trading. However, the trade-off is simply adding a third currency to a trading pair that was previously unregulated. Only use a locally regulated forex brokerage if you want to take on that danger.

Mastering short-term CFD trading strategies

Mastering short-term CFD trading strategies

One of the most crucial aspects of CFD trading is establishing a plan before entering into any transaction. A solid approach may make the difference between winning and losing, so it’s critical to know how to create and apply one.

There are many different CFD trading strategies, but not all will suit everyone. It is crucial to find a strategy that works well for you and your circumstances.


One popular type of CFD trading strategy is known as scalping. Scalping involves taking small profits regularly, usually over a brief period. It can be an extremely profitable strategy, but it does require a significant amount of discipline and experience to be successful.

Swing trading

Another popular CFD trading strategy is swing trading. It involves holding a position for a more extended period than scalping to take advantage of more significant price movements. It can be a more relaxed way of trading, but it still requires a good understanding of the markets and patience to wait for the right opportunities.

Position trading

Position trading is a longer-term strategy that involves holding a position for weeks or even months. This strategy can take advantage of longer-term trends in the market. It can also diversify your portfolio and reduce your overall risk.

Day trading

It’s a lot riskier to adopt this approach because it can lead to far more significant losses if your assumptions about the market are incorrect. However, if done correctly, it may be pretty lucrative.

Momentum trading

Momentum trading is buying and selling assets to profit from changes in price direction. It’s a highly volatile and hazardous technique, but it may result in big profits if done correctly.


Arbitration is a type of trading that involves taking two opposite positions in two different markets to profit from the price difference. It can be a precarious strategy, but it can also lead to high profits.

It’s critical to have a clear strategy before entering any trade, regardless of the CFD trading technique you select. It will assist you in maintaining discipline and concentration and enhancing your chances of success. There are several advantages to trading CFDs. The most obvious is that you may profit from the underlying asset’s possible price changes without owning it. This broadens your scope of activity in the financial market.

A few things to consider

To begin with, consider your position and goals. Are you bullish or bearish on the underlying asset? What is your risk tolerance? How long do you want to hold the position?

Next, consider the market conditions. Are you trading in a bull market or a bear market? What is the current trend? Is the price of the underlying asset overvalued or undervalued?

You should bear in mind your level of expertise as well. A simple method is probably best if you’re new to CFD trading. You may experiment with more complex methods as your experience grows.

It’s also critical to set modest goals. Regardless of how good your plan is, there comes a time when everyone loses some money. Trades will occasionally go sour, and you must be prepared for it. Accepting losses is an essential aspect of successful trading.

One of the most significant advantages of trading CFDs is that you can use them to reduce your risk. For example, if you’re bullish on a particular stock but don’t want to risk your entire investment, you can buy a CFD instead. This will give you exposure to the stock’s upside potential while limiting your downside risk.

In conclusion

There is no universally applicable CFD trading strategy. What works for one trader may not work for another. It is critical to discover a plan that works for you and your goals. You have a better probability of success if you have a good strategy.


How to become a day trader on the stock markets

How to become a day trader on the stock markets

Day trading is a high-risk, high reward profession that requires intense research and learning about the industry. To start your career as an aspiring day trader, you’ll want to find someone who can help guide you in all aspects of this challenging field, from broker selection down through the account opening process; once those steps have been taken care of, it’s time for action.

Some brokers offer demo accounts that allow you to test out your strategies without any risk. These are great for getting comfortable with the trading platform and learning what works best in different markets but remember it isn’t always easy, so don’t get too confident! It can take time before real money is involved- stay patient when things go south sometimes because there will be plenty more opportunities than just winning right away.

We all lose from our portfolio eventually; however, if we continue practising and improving skills, future profits should come much more manageable.

Research the industry

The first step to becoming a day trader is to do your research. It means learning about the different strategies, products, and markets available to trade. It’s also essential to understand the risks involved and how to manage them. There are many resources available online and in libraries.

Learn the basics of day trading

Day trading is a very challenging and stressful activity. It would be best if you never dived into it without understanding the basics of how to do so, which includes learning about different order types and chart patterns or technical indicators that can be used when looking at graphs of prices over time (like MACD). There are many free online resources if you want more information on these topics, but there are also paid courses for those who wish less work cut out just getting started with their education.

Find a broker and open an account

Not all brokers are the same, so your next step is to find a broker that offers day trading services and open an account. Be sure to compare fees, platforms, and services before choosing a broker. It’s also essential to ensure they offer access to the markets you want to trade. Once you’ve found a broker you like, you can open an account and begin funding it.

Demo trade to learn the platform

If you’ve chosen your preferred broker and opened your trading account, it’s time to start trading. But before you risk any real money, it’s important to first practice with a demo account. It will allow you to get familiar with the broker’s platform and how to place trades. You’ll find that the demo account offers loads of benefits as you can also test different strategies without risking real money.

Start trading with real money

Once you feel comfortable with the platform and understand how day trading works, it’s time to start with real money. Begin with small position sizes and only risk a small amount of capital. As you gain experience, you can gradually increase your position sizes and begin to take on more risks.

Stay disciplined and patient

Never forget that a vital aspect of becoming a successful day trader is to stay disciplined. It means following your trading plan and sticking to your strategies even when things get tough. It’s imperative to stay patient and wait for the right opportunities. Don’t force trades just to make a quick profit.

Keep learning and improving your skills

The journey to becoming a successful day trader is never-ending. There is always more to learn and new skills to develop. So, make sure you keep learning and growing as a trader. This can be done by reading trading books, watching trading videos, and attending seminars.

Have fun

Finally, remember to have fun while trading. If you’re not enjoying it, you’re likely to make bad decisions. Trading should be seen as a fun challenge, not as a job. So, take some time to relax and enjoy your profits.

A final word

In conclusion, becoming a day trader is not an easy task. However, if you do your research, learn the basics, and practice with a demo account, you can succeed. It’s important to stay disciplined, patient, and have fun while trading. Keep learning and improving your skills to continue success in the future. Happy Trading!

How do beginners trade stocks?

How do beginners trade stocks?

When you first take up the hobby of stock trading, it can be not easy to know where to begin.


We’ll break down each step in the buying process, starting with setting up an account and choosing which company to invest in.

Create an account

Firstly, you create an account on a stock trading website. You can sign up for the most significant sites online; the process only takes about ten minutes.


Once you’ve signed up, it’s time to fund your account! There are two main types of accounts that traders use.


A cash account is used when an investor doesn’t want to risk any capital on the market – they want to invest small amounts over time since there are no opportunities for quick returns using this type of account.


There’s the margin account for more aggressive investors looking for high-risk, high-reward investments.


This type of account uses borrowed capital to make more significant trades that can potentially generate larger returns and pose a much greater risk of financial loss.

What kind of trader are you?

Before you start trading with cash or margin accounts, you need to figure out what kind of trader you are.


Are you the type of person who likes investing small amounts over time? Then a cash account is probably correct for you.


On the other hand, if you think that your investment decisions are best made by quickly moving in and out of stocks before their prices have time to fluctuate too much, then it would be better for you to invest using a margin account.

Looking at companies

The first step is looking at the market indices and seeing where we stand as a whole.


The S&P 500 index, consisting of 500 leading U.S companies such as Apple Inc., Google Inc., and McDonald’s Corp., is an excellent place to start if you want to invest in established U.S businesses that sell goods or services worldwide.


Dow Jones Industrial Average is also a well-known index; it focuses on 30 large American companies and their domestic business operations.


On the other hand, investors with more interest in international markets would be better off focusing their attention on BRIC Index, which includes national indices from Brazil, Russia, India, and China, the fastest-growing countries in the world.


The MSCI World Index is a good alternative if you want to invest in companies from all over the globe instead of just focusing on a few specific regions.


Once you’ve decided which market to focus your attention on, it’s time to start looking for companies that interest you.

Potential investments

To find potential investments, investors use screening tools such as filters and screeners that narrow down their options based on P/E ratio or dividend yield criteria.


Once they know what kind of company they’re looking for, they can see whether any companies fit the bill by viewing complete profiles for each public company.


Afterwards, we should look at each company individually and make sure it fits what we’re looking for.


From here, it’s time to open up an account with your broker (most brokers are okay with opening accounts online), fund your account and start trading stocks.


When looking at potential investments in terms of profitability per year, some investors prefer to look at earnings before interest and taxes (EBIT) instead of net profit or earnings to get a more accurate picture of the company’s profitability.


Another popular metric among investors is gross margin, which measures how much money a company makes from goods and services without considering operating costs such as labour and materials.

In conclusion

It’s worthwhile to spend some time reading articles and other financial news about any companies we’re considering investing in so we can gain as much insight as possible before buying shares.


It will give us a better understanding of its position in the industry and what kind of events might affect its price movements.


When buying stocks, it is essential to know financial ratios such as EBITDA margin, gross margin and dividend yield so you can separate good opportunities from bad ones.


Once we know more about how these work, we will be able to make informed decisions when trading stocks.




The different types of ETFs

The different types of ETFs


There are two different kinds of ETFs: passive and active. Passive ETFs track an index, while actively managed ETFs employ a portfolio manager who tries to beat the index by buying and selling investments to increase its performance.

Passive Exchange Traded Funds (ETF)

The most popular type of ETF is passive index-tracking ETFs.


A passive fund tracks a market index, such as the S&P 500 Index or FTSE 100 Index, by holding all securities in the index in the same proportion as that index. If the S&P 500 increases by 2%, then you can expect a passive ETF tracking this index to increase approximately 2% as well.


Passive exchange-traded funds have lower expense ratios than managed mutual funds because they require very little management oversight.


Their low overhead costs allow them to realise more significant economies of scale. ETFs also provide tax benefits over mutual funds because they do not sell securities when investors redeem their shares.


Hence, investors benefit from a potentially more favourable capital gains tax treatment than mutual funds.


The greater liquidity of ETFs can also give investors an additional advantage, as orders to buy and sell ETF shares at market prices are filled much more quickly than orders to buy and sell mutual fund shares at their net asset value (NAV).

Active Exchange Traded Funds (ETF)

An actively managed fund is run by portfolio managers who buy and sell securities intending to beat the target index or market benchmark after fees are taken into account.


An example of an actively managed ETF would be one seeking to mimic hedge fund performance. Its portfolio managers beat various market benchmarks, such as the S&P 500 Index.


An actively managed ETF has its portfolio manager select specific securities to purchase and sell. In contrast, an index-tracking ETF will hold all of the securities included in the benchmark it tracks.


For example, one popular method of pursuing excess returns is purchasing smaller companies with high growth potential relative to larger companies within a particular sector.


An active fund may drop the biggest names in each industry from their investment selection because they are too large or have fallen out of favour with analysts and investors.


This process results in higher turnover than index-tracking funds, generating capital gains distributions for taxable accounts.


Even though both types of funds trade throughout the day on stock exchanges, active ETFs tend to be less tax-efficient than index-tracking ETFs.

ETFs vs mutual funds

Which is Right for me? Despite the benefits of ETFs, index-tracking mutual funds can be a better choice for some investors, depending on their goals and circumstances.


Compared with actively managed mutual funds, many studies have consistently shown that passive index-tracking funds tend to outperform actively managed funds after expenses are considered.


It may be because fees charged by active managers eat into returns that otherwise would go towards investment appreciation – often without generating extra returns.


On the other hand, ETFs are not well-suited to tax-loss harvesting because they lack many securities that allow mutual funds to minimise capital gains distributions due to low turnover.


ETFs also don’t provide investors with immediate diversification like mutual funds because an individual ETF represents ownership in only one security, which can be risky for specific portfolios.

The extra costs you are paying

Capital gains distributions are the fund manager’s share of realised gains that affect out-of-pocket expenses for shareholders as cash is passed on to those who own shares in the fund.


It means an ETF shareholder will pay capital gains tax on their portion of these distributions, whereas a mutual fund shareholder pays no taxes until they sell shares of the fund.


The higher turnover within active funds and more frequent buying and selling of securities generate more short-term capital gains than index funds, which can be particularly costly for investors holding their positions for less than one year.

At the same time, it may seem more straightforward to avoid paying tax by holding your position long term.


Some actively managed funds have also realised substantial unrealized capital gains that could be distributed as taxable distributions.


Drawbacks of investing in bonds vs stocks?

Drawbacks of investing in bonds vs stocks?

Bonds and bond funds are a popular investment choice for many Americans. They are widely available, with little risk, and have yielded high returns historically. However, there are good reasons why most financial advisers do not recommend investing in bonds as heavily as most investors do. Despite their drawbacks, however, they are still among the safest ways to invest money, which is why most long-term investors hold some portion of their portfolio in them.


Mutual funds offer an excellent way to diversify even small investments over large stocks at once. Bond mutual funds can be advantageous for those who cannot afford or don’t wish to purchase individual bonds. However, mutual funds that contain only bonds operate under different rules than stock mutual funds, and there are several drawbacks you should be aware of before investing in them.

Expense ratio

First and foremost, bond mutual funds almost always have higher fees than stock mutual funds. The expense ratios for most bond mutual funds range from 0.5% to 1%, while the average stock mutual fund has an expense ratio of just 0 . 17%. These fees can quickly eat away at your profits, so it’s essential to compare the costs of various funds before investing.

In addition, when interest rates rise, bond prices fall. It’s known as “interest rate risk.” Because a bond’s value is directly related to the interest rate at which it can be re-sold, a bond issued when interest rates were at their nadir cannot be sold until these rates rise again to make the bond profitable for its owner.

Fluctuations in inflation

The other risk that arises from interest rate fluctuations is inflation, which occurs when the prices of goods and services increase throughout an economy. When this happens, it decreases the value of money since each dollar becomes relatively less valuable than before. Because bond prices are tied to interest rates, they will fall in value as inflation rises. It means investors should expect lower yields on their bonds due to inflation even if nominal interest rates stay low or decline further.

Interest Rate Risk

As stated above, a bond’s value is related to how much can be resold—an inverse relationship exists between the value of a bond and interest rates. Inversely, if interest rates go up, the price of a bond goes down. It’s not only common sense but also backed by academic research. Several theories determine how much a bonds price will drop in response to a change in interest rates, under what conditions they may fall more or less than some predicted amount, and even when bonds might rise due to a rise in the general level of interest rates.

High fees

Second, the high fees associated with most mutual funds sold on the market today make them poor investments for short-term investors. The average expense ratio across all mutual fund assets is 0 .25%, while any given bond mutual fund’s fee can be up to 1%. However, these fees are charged regardless of whether or not investors make money on their investments. Because short-term investors can quickly get out of a mutual fund before these fees start to eat into returns, they should only invest in bond funds if they’re willing to hold for several years, if not longer.


Suppose your investment goals don’t fall within the time frame during which you expect interest rates to rise; investing in bonds is a safe choice that will help you grow your wealth over time without taking much risk at all. However, suppose you need your money soon or intend to withdraw it as quickly as attractive returns appear elsewhere. In that case, you should be wary of the risks outlined above and consider other types of investments.

In conclusion

There are several drawbacks to investing in bond mutual funds. Although they can be advantageous for long-term investors, short-term investors and those who don’t want to take the time to select and monitor individual bonds individually should stay away.

Reversal strategy in forex trading

Reversal strategy in forex trading

Forex is the short form for Foreign Exchange and it is a market where currencies from different countries get traded. In this market, traders buy or sell currencies at current rates to make a profit.

What is a reversal strategy?

A reversal strategy in Forex trading means that a trader takes advantage of price movements going against their ‘trend’, i.e. when a currency stops going up or starts going down instead of continuing its previous trend. This strategy works well if the ‘trend’ has been strong enough to have lasted for some time and it’s possible to determine the very moment when the trend might be reversed.

In Forex trading, several factors affect prices through what is known as technical analysis. These include the foreign and domestic money supply and inflation rates, interest rates, and more. While some of these factors can be controlled, others cannot.

How to use a reversal strategy

To trade using a reversal strategy in forex trading, traders should learn how to identify the trend in prices at any given time. This makes it possible to determine when the trend might reverse. In this context, the most popular ways of identifying trends involve looking at charts with different types of price activity over a certain period of time. These trends give clear indications if a currency is going up or down after a specific time interval.

Every type of charting used for comparison involves plotting two sets of data against each other by using lines within the chart area itself. One set of data is known as ‘trend lines’ and the other one is called resistance and support levels. Trend lines are usually straight or wavy lines that connect at least three or more low points (or high points) in the chart area. Resistance levels are shown by horizontal lines around prices where many traders will attempt to sell at these price points. As for support, this is defined by a series of ascending prices, meaning it’s the level where buyers congregate to buy what they can afford before it goes up even more.

When these patterns become visible on charts, it shows that there might be a reversal coming soon, i.e., when the trend line changes direction and starts going down instead of continuing its previous direction upwards. This strategy works well if the trend has been strong enough to have lasted for some time and it is possible to determine when exactly it might be reversed

The two types of reversal trading

There are also two types of reversal patterns in Forex trading: reversal candlestick patterns and reversal bar patterns. Candlestick patterns are graphical formations that are made up of one or more candlesticks. These formations give clear indications as to whether a trend might reverse or not. Bar patterns, on the other hand, refer to the different types of bars that can form on charts and these also give indications to reversal moves.

Reversal strategy in Forex trading is based on the assumption that when a currency has been going up for some time and it reaches a resistance level, it is likely to start going down instead. This happens because, at this point, many traders who have bought the currency at lower prices will attempt to sell it at higher prices, thereby reversing the trend. The opposite is also true; when a currency has been going down for some time and it reaches a support level, this is likely to start going up again. This happens because, at this point, many traders who have sold the currency at lower prices will attempt to sell it at higher prices to take advantage of an increasing trend

Another example where the reversal strategy works well is when you see that there are no more buyers or sellers in the marketplace. As soon as this happens, most individuals with prior knowledge regarding the situation would go against the flow and try to sell their currencies in case they want to get out of trading them altogether. This can be seen in what is known by traders in Forex trading as; ‘no-trade zone’.

In conclusion

When one applies this strategy cautiously and doesn’t rely on it too much, it can be a very effective means of profiting in Forex trading. It is important to remember that not every trade will result in a reversal and sometimes the market will just move sideways. So, as always, traders should use stops to help protect their positions and minimize potential losses.






CFDs: the pros and cons of using them

CFDs: the pros and cons of using them

The first thing you must consider when determining whether to use CFDs as a trading strategy is that they can be very risky. You should be prepared for this risk and willing to take it on before investing your money into this trading practice. However, if you are willing to put in the time and effort, using this type of investment as a trading strategy may allow you to make more money than if you only trade one type of stock.


Let’s look at some of the advantages and disadvantages of using CFDs as a trading platform so that you have a better idea of what it entails before making any final decisions about investing in them yourself.


Advantages of trading CFDs


A considerable profit in a short amount of time

One significant benefit associated with trading CFDs is that you can make a lot of money in a short amount of time. You can put very little money into the investment and have a good chance at doubling or tripling it. This makes them attractive to those who want to try their hand at trading but don’t have a large sum of money they can invest.


Advantage of price increases

Another benefit, as mentioned above, is that CFDs allow you to take advantage of rapid price increases. If you are using other types of trading strategies, it might take several days for the value of the stock to increase enough to make a large amount of money. While this is not bad, CFDs can give you that same opportunity in just one day.


These advantages mean nothing unless you understand how to work with them and use them as your investment strategy. It’s up to you to choose which direction you want to go next with your investments, but you should do so after considering all factors and considering what will be best for your current situation. If you want this type of trading strategy to work well for you, you’ll need time, so try not to rush anything!


Some disadvantages of CFDs


Brokerage fees

A significant disadvantage associated with CFDs is that you have to pay brokerage fees every time you buy or sell them. This is different from other trading strategies because when you invest in stocks, bonds, or mutual funds, the only fee you are charged is the one for investing. CFDs are an entirely different animal because these fees are built into their value.


Large risk

Another drawback associated with this type of strategy is the large amount of risk it carries with it. While there are significant potential profits, they do not come without a lot of preparation and time put in to make sure everything goes your way. You will need to make sure that any money you put into this strategy can afford to lose if things go wrong. If you cannot afford that kind of risk, you may want to consider another type of trading strategy until you are ready for this one.


Large losses

One final drawback with using CFDs as a trading strategy is that if something goes wrong, the loss you take may be so significant that it sets your progress back months or even years, depending on how much money was lost. You must weigh this risk against the potential reward and ask yourself if this might not happen to you at some point in time. If it won’t, then maybe this is a good fit for you.


In conclusion

Using CFDs as a trading platform presents both advantages and disadvantages depending on how much work and effort has been put into learning about them and developing a sound strategy involving their use. While they can give the trader a nice short-term profit, they also can cause large amounts of financial loss in a brief period. Decide how much risk you are willing to take when considering if this is the right investing strategy for your needs.

An insight into CFD trading for beginners

An insight into CFD trading for beginners

What are CFDs?

CFDs are popular financial instruments that make up part of a trader’s portfolio. However, it may be challenging for beginners in the market to comprehend all of the benefits and drawbacks of investing in and trading CFDs.


What is CFD Trading?

So, what exactly is the significance of this contract? Profit and loss are determined by comparing the difference in price between when a contract is started and when it’s finished.


The difference between the contract price and the market price at the end of the contract is paid by the broker – or “seller” – who enters into this agreement with you. The trader, the “buyer,” will reimburse the broker if a profit is made.


The difference between the price at which you enter and when you exit, multiplied by your number of CFD units, is the key calculation to figure out your profit or loss. CFDs are available in a variety of markets.


Benefits of CFDs

The most significant benefit of CFDs over other forms of trading is their leverage abilities. They can provide up to 20x leverage on short-term contracts, meaning they only need to put down 1/20th of the total value of the position to open it. This means that you can make significant gains with relatively small moves in prices, making it much easier to capitalize on market movements with tight stop losses (explained later).


More benefits:

  • The expiration date for this membership does not need to be changed.
  • It may be used as a hedging strategy.
  • Trade on both rising and falling markets at the same time by enabling a trader to do so.
  • Traders who make markets in underlying assets gain the ability to go long and short on them.
  • Offer a wide range of trading possibilities. A trader may use the same trading platform to access various markets such as commodities, currencies, shares, and indices.
  • Provide a more significant opportunity for profit. CFD dealers typically provide CFDs with higher leverage than other conventional financial products.
  • Traders will enjoy many of the savings associated with conventional trading while avoiding many of the costs.


CFD Margin and Leverage

Trading CFDs necessitates the usage of margin and leverage. One of the primary benefits of CFD trading is that you only need to put down a minor amount of money for the whole trade.


Caveats in using CFDs

Due to these benefits, there are some caveats in using CFDs to stay in the good graces of the FCA (Financial Conduct Authority). There is a rule that states spread betting companies cannot pay out a commission on their earnings; they must reinvest it. This means that if you win with your CFD, you’ll need to pay commission on any profit made (20% for stock assets and 13% for currency assets), but if you lose with your CFD, your losses can offset your commission fees for up to 9 months. This creates a very safe and highly smooth trading experience.


The other major caveat is that the FCA regulates how much leverage you can use. With spread betting companies, you can only use 2:1 leverage (meaning your position only needs 1/2 of the total value to open it). With CFD providers, on the other hand, there are no limitations on how much you want to use. If you want 100:1 leverage (which would mean a £1,000 trade would require an investment of only £10), go right ahead – but expect such high-leverage trades to be extremely risky and volatile!


Opening and closing trades in CFD products are subject to a spread charge. As a consequence, it may be more challenging to achieve tiny gains. Trading CFDs is a complex activity that you should not do without a thorough risk management plan.