People are intimidated by the idea of trading stocks. Stocks can be challenging to learn about and easy to lose money on if you don’t know what you’re doing. Contracts For Differences, or CFDs for short, provide a different way to trade the market through leveraging your capital instead of purchasing the stock itself.
What is a contract for difference?
A contract for difference allows you to speculate on whether or not a stock will rise or fall in value without ever owning it outright. A contract for difference is the agreement between two parties that allows one party (you) to benefit from an increase in value while allowing another party (your broker) to “sponsor” any loss associated with the trade. If you own stocks outright, you’re responsible for paying any taxes related to the stock. When you trade CFDs, you don’t have to worry about any of that – that’s your broker’s responsibility!
Let’s look at an example with AAPL (Apple). A share in AAPL is currently trading at $154. You decide to trade a million dollars worth of AAPL using contracts for differences instead of buying them outright. Your broker will use your money to purchase one million contracts with another party on the opposite side of the agreement for $155 each.
If Apple trades up to $160 by expiration or if Apple closes above this level when expiration arrives, then every contract in the trade will be worth $5, or 100 per cent return. It means that you’ll get $500,000 in profit after paying back the total amount of your initial investment along with interest to the broker for sponsoring your trade. It is just one example of how you can use contracts for differences to speculate on stocks without actually owning them. The process works the same way whether you’re trading one or 100 contracts at a time!
How can I trade using CFDs?
Since CFDs are traded using brokers instead of an exchange, it’s easy to do so from anywhere in the world as long as you’ve got an internet connection and some money saved up. Even multiple platforms offer no-minimum deposit accounts, meaning that you can start trading CFDs with low amounts of money instead of having to save up thousands or even tens of thousands to get started.
Benefits of using CFDs as a trading strategy in Singapore
CFDs are one type of contract for difference that allows you to speculate on the price movement of underlying security without ever purchasing or holding the actual stock. It offers several benefits over conventional approaches, including:
Because many brokers sponsor any loss associated with these trades, you don’t have to worry about losing any additional capital beyond what you put into the trade itself. Your broker will be responsible for covering your losses and earning your profits by charging interest on your loaned funds instead. CFDs allow you to spend less time analyzing stocks since they’re just a contract with a counterparty. You can choose a CFD that closely matches the underlying security you want to trade and then leave it be until expiration, or you decide to close out of the trade. It makes it easy to diversify your portfolio without requiring a large number of transactions – just a few well-timed trades!
Start trading contracts for differences now!
Contracts For difference offer an alternative approach to investing in the stock market by eliminating the need for purchase, ownership, and any related taxes. Learning how contracts for differences work takes less time than learning about stocks themselves while giving you all the benefits of trading securities.
Why not start trading contracts for difference today? Get started using Saxo Bank no -minimum, no-deposit accounts to get your feet wet with CFDs (see it here). You can learn all about how it works for free or try out a demo account that will let you experience everything without risking even a dime!