5 ways CFDs Can Work Effectively for Your Trading Portfolio
Understand how CFDs can work for you.
01 THIS WOULD HAVE TO BE LEVERAGE
When you buy shares/stocks/equities, you pay the full price. You own them right? Then you wait for the price to rise, get dividends, and one day, when the price is right you sell them and your wealth increases. With CFDs you can do all that, except you don't have to pay so much to buy the stock.
If I want to buy an ASX200 stock I will only pay 5-10% of the share price. So if the stock price is $50, and I want to invest $200, I can get 100 CFDs for the price of 4 shares! When the price of the stock increases, I can sell my CFDs and get the same profit the seller of shares gets. The big bonus is that I'll be getting the profit x100, not x4!
02 PROFITING AS THE MARKET RISES AND FALLS
CFDs can be used to short the market. This is fantastic if I hold stocks in a long term portfolio and I want to hedge against drops in their value. I buy the stock as a CFD to go short (drop in value). I'm betting against others who think the value is going to rise.
For example, I hold Bank of Queensland shares and I think they are in for a drop. I only want to risk $250 of my account ($30K/<1%) and that will buy me x1666 BOQ CFDs (they have a margin of 10%) at the price of $10.99. I sell short at 10.00 and make $1649. So, minus the initial $250 and after commissions of approx. $18, I’m well ahead with a $250 investment rather that buying shares at over $18,000!
03 ACCESS MASSIVELY LIQUID GLOBAL MARKETS
When I sign up for a CFD account with one of the well regarded CFD platforms I have access to an amazing array of stocks. I love trading big US stocks like Apple, Amazon, Google and Facebook. Huge makers with lots of activity. Always an opportunity to trade up and down.
04 I STILL GET DIVIDENDS
You might think that as a derivative/ CFD holding is not going to get you the side benefits that shares do. You are partly right… when I trade a stock short, I don’t get any, in fact I pay it out, but if I’m going short it actually works in my favour. If I have a CFD like BHP which I am trading long, I do get the full dividend for only paying out 10% of the share price. Note, I must buy at least a day before the dividends are released.
05 TRADINGLOUNGE IS HERE TO HELP
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