The contract for difference has its pros and cons which you need to know before you decide to start trading on it. They include the following:
- The CFDs are known to allow the investors to trade the price movement of assets that include stock indices, ETFs, and the commodity futures
- The CFDs are believed to offer investors with all of the risks and benefits of owning a security without truly owning it.
- CFDS utilize leverage to allow investors to put up a smaller percentage of the trade amount that they have with a broker.
- CFDs allow the investors to take short or long position easily or a sell and buy position
Apart from the above pros that you will get from using CFDs, the following are its cons:
- Although it is possible to amplify the leverage gains with CFDs, losses can also be magnified by the same leverage
- The extreme price fluctuations or volatility can lead to wider spreads that happens between the ask (sell) and the bid (buy) pries from the broker
- The industry of CFD is not regulated well, which USA don’t allow, and the traders have to rely on the reputation and credibility of the broker.