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By: Arlen Cliff

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Thursday, 14-Jul-2011 05:45 Email | Share | | Bookmark
How to trade in Stock Exchange under CFD

There was a time when Stock trading was the domain of some business houses. Individual investors seldom attempted to trade in Stock because they were either unable to make huge investment or because they were reluctant to risk the huge investment. This was actually a drawback in the stock trading business. This drawback was rectified in recent times with the introduction of CFD Stock Trading.

CFD also called as ‘Contract for Difference’ has now been recognized as one of the most appropriate form of trading by one and all. Now the gates are open for even a small investor to venture into stock trading.

Brief introduction of CFD:

CFD has been in practice in the stock market since the year 1990. The investor who trades under CFD will have to pay the seller just the difference between the prevailing value of the stock and the value it was contracted by him. So, if the price of the Sock is $50, the investment under CFD could be just $5. For trading under CFD there is no written agreement. The parties will just enter into a credit agreement and this credit agreement provides for all the terms and conditions as agreed to between the parties. The rate quoted (also called as ‘Creating Position’) will be prevalent till such time the broker desires. In other words the rates quoted do not have any time limit. The broker charges towards the brokerage, overnight financing etc. Here again the rates at which these charges are to be levied is dependent upon the credit agreement between the parties. Normally, CFD trading is done with the broker directly and it is not routed through any Stock Exchange.

What are the advantages of CFD trading?

CFD trading requires minimum investment. Therefore, even individual investors with minimum investment can venture into Stock trading. As a result, the risk factor also reduces to a large extent. Transactions under CFD do not attract the provisions of Stamp Duty law.

Are there any disadvantages?

According to experts, CFD is suited only for short term investment. Those who want to retain the Stocks for longer duration of time cannot participate under CFD. Further, experts also warn that unscrupulous brokers may misquote the Stocks so as to make profit. Such a situation may put the investor into risk of losing the money. Therefore, the investors are advised to approach only reputed and experienced brokers for trading under CFD.

Arlen Cliff is a freelance writer who writes about CFD Provider and an extensive array of services to keep our clients informed and educated, Also efforts to extend and improve our services to you for best Share Trading features. Also read my Articles at Arlen Cliff Articles and my Bookmarks at Arlen Cliff Bookmarks.


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