thought it might be a good topic, in helping but also explaining how CFD's are traded, but also how they allow more exposure, vs a difference risk strategy, managment and control, compared to other derivative instruments out there and there advantages.
CFD's are quite similar to all these other products, such as warrants, options, margin lending, the overall advantage of CFD's are there low entry cost, almost maximun leverage (exposure), liquidity, and in a way very similar to trading stocks - as stocks (but are turbo charged on viagra and steriods)
CFD's allow you the ability to both short and long a stock, dividend capture, and stock split.
Overall, its almost like trading the stock on margin, but instead the ability to trade on as little capital of 1 - 5% (other CFD providers require a 10% down) but an exposure of 95 - 99% margin lend out.
the disadvantages are, the ability to be margin called on a 1-2% fluctuation in price action.
*** so set tight stop losses, or have money put aside in your kitty, (but if you are margin called, but still in the position, keep money in your account, to keep your position open, but also this can still magnifer your profit intentions, even further + more.
Eg.. of CFD trading, vs stocks, stocks on margin.
for example lets say the position im currently trading is SRP.
My initial entry for all instrutments is $3.75
We also have $10,000 cash as our advantage.
as for example or we can control this many amount of stocks per each $10,000 worth of value.
Stocks 2666 units x $3.75 = $10,000 Exposure
Margin (assumming 70% lend = 8800 units x $3.75 = $33,000 Exposure (30% capital, 70% margin)
CFD (95% lend) 53,333 units x $3.75 = $200,000 Exposure (5% capital, 95% margin)
as we can see from the above example CFD's allow a greater exposure of leverage and control compared to the other products in purchasing shares.
(more on CFD's will be written shortly again.)