Financial Gaming Guide

CFD is the simplest derivative instrument in the financial market trade to learn and execute. It suits all forms of investors- small, big, novice, experienced, part-time, full-time and day traders. In fact, CFD is a rage amongst day traders and the market is almost always abuzz with day trading CFD strategies. This article explores the major reasons as to why CFD is a day trader’s favorite and the strategies that go with it.

No requirement of financing overnight: CFD are normally OTC (over the counter) trades and most of them expire on the same day making them the ideal choice for day traders since they can sum up their investment on the same evening. CFD trades can also be carried over but attract overnight financing charges. Long position CFD’s are typically charged at RBA+2% p.a. So, typical CFD trading positions are closed on the same day to avoid the interest costs that eat up into the profits.  

Better leverage: Day traders get a good leverage position on CFD trades compared to the long range ones. This makes CFD day trade all the more interesting for day traders since they can earn more money with lesser investment as compared to conventional stock brokering.

Liquidity: The market for day trade CFD’s is highly liquid and so much so that it mirrors the market liquidity. The liquidity is quite transparent and can be assessed by a DMA (direct market access) for various depths. Day trading CFD need a high liquidity and assessable market depth for successful trading and with the availability of these, it is easy for a day trader to make a killing in the market. Once the CFD flips to the next day, the equation of liquidity changes and thus the risk increases.

Commission: Day trade CFD traders charge a very low commission making it highly profitable for day traders to make the maximum profits. In case of long run CFD trades, the commissions are also higher along with the interest charges, making them more expensive. In fact, CFD trades on indices are commission free and hence make them highly profitable for day traders. Even for other CFD’s the commission amounts to hardly 0.1% and hence they are highly profitable.

Volatility: Day trades are highly volatile and especially so in case of CFD trading. This makes the market highly interesting and adrenalin-flowing to the investors. The short-term day traders are highly excited with higher volatility since it gives them a chance to profit higher with intra-day surges.

In addition to the above advantages, CFD trading is highly sought after due to its various other features like being tax free and non-ownership quality. With an opportunity to ride the markets without a long term commitment makes CFD trading all the more interesting. When an investor can actually count the profits at the end of each day, the joy of CFD trading is further multiplied, no wonder it is the favorite of day traders the world over.