Achieving Sustainable Wealth Growth with CFDs
Contracts for difference are powerful trading tools within the modern marketplace. Any CFD enables the investor to benefit from the price fluctuations of an asset within a given period of time (hence the term “contract”) without having to enter into physical ownership. When this concept is combined with leveraged trades and agreeable margins, individuals can stand to make (or lose) a great deal of money. Let us look at some of the ways to avoid common pitfalls and achieve sustainable wealth through the use of these unique trading options.
Understanding the Power of the Leverage
It is first critical to appreciate the benefits and possible drawbacks of a leveraged trade. By definition, a leverage will enable the trader to only supply a portion of the total asset value in order to own a position for a given period of time. For the sake of argument, let us imagine that this value equates to £5,000 pounds. The total worth of the position would therefore equal £50,000 pounds assuming that a leverage of 10 per cent is required. The opportunity to make a healthy profit should be obvious. However, losses can just as easily accrue unexpectedly. These may far exceed the initial amount deposited. Any leverage should therefore be undertaken with prudence alongside a thorough appreciation of the risks involved.
A Variety of Assets
Another massive benefit in regards to CFD positions offered by reputable brokers such as CMC Markets is that there is a massive diversity to choose from. These will generally be grouped into discrete categories such as:
- Treasury positions
- Forex pairs
The main advantage here is that the trader has the ability to diversify his or her portfolio as opposed to remaining in one market alone. This is an excellent way to supersede the volatility within a certain sector by realising profits in another.
The Benefits of the Stop Loss
Some traders may be wary to enter into a CFD position due to perceived volatility. This is why employing a stop-loss order can be crucial at times. This is an automatic function intended to close a position if a trade loses a certain percentage of its total value. As opposed to some other financial instruments, stop-loss orders are also an effective means to avoid emotions becoming entangled within the trade itself. As opposed to “letting it ride” in hopes of a recovery, the position is closed and financial losses are minimised.
These are some of the means by which even novice traders can build sustainable wealth with the help of CFD trading. Still, we should recall that the type of platform chosen will have a massive impact on such advantages. Some brokers also offer the option of opening a demonstration account first, so that you can get to grips with the trading process before making real trades. Offering liquidity and stability alongside healthy profit margins, contracts for difference are certainly worth a closer look.