CFD, short for “contracts for difference,” is a form of trading where the trade occurs in contracts for the delivery or maturity of an asset class. This form of trading is increasingly offered by several reputed Forex brokers in Malaysia like WesternFX, and it is a way to trade stocks, indices, and commodities.
How does it work?
A CFD contract is an agreement between two participants - a trader and a provider of the contractual agreement. CFD is usually done on assets such as bonds, stocks, index funds, currency, oil or gold which have an opening date and a date of maturity/ delivery. The trading activity is usually on the difference between the opening and the closing price of a contract.
Certain contracts rise and fall in value during the contract period. This makes it possible to trade in live movements of the market price of the instrument. The instrument may never be owned by the trader and it will likely be settled before the delivery of the contract occurs. These contracts are much more flexible than other modes of online trading in Malaysia and come with long and short types of trading facilities depending on the trending price direction.
Benefits offered by CFD trading:
- The investor is not required to own the financial object. He merely trades on the contract, an instrument which guarantees the delivery of the object. Hence, he can invest partially or wholly in a contract and trade on it.
- The rates of deposit begin from just five percent. This makes it easy to open large positions with minimal investments.
- Some of the contracts in CFD trading usually do not have an expiry date. They can be traded endlessly thereby making the chances of reaping profits much higher.
- There are no taxes and brokerage fees in CFD trading, thereby making it a highly lucrative trading arena.
While there are several benefits of trading CFDs, there are equally certain aspects which can cause losses if not handled properly. When engaging in CFD trading in Malaysia, it is highly important to have a sound risk management plan so that the traders can safeguard their investments when markets turn sour. For beginners looking to take up this domain, it is important to consult with reputed brokers like WesternFX and get the fundamentals strong before get started with CFD trading.
