1.Speculation. As CFD traders typically hold positions for a short time span you are not typing up your cash which means that when you see a trading opportunity you will have sufficient funds in your account to take the trade.
2.The commission rates on share CFDs are typically much less than on traditional share dealing.
- Small moves can also be magnified further using leverage.
4.Profit from a falling market. CFDs allow you to profit from a stock or index that is falling in value. No longer do you have to sit and wait for the market to recover, as the market retracements offer opportunities on the short side as well as the long side.
There is no settlement period when closing a CFD position — meaning an investor can buy and sell positions instantaneously.
Pairs Trading, a short-term trading strategy which can be very effective to trade two companies whose share prices are currently out-of-sync from their ‘usual’ correlation.
7.You can also use CFD trades to hedge against a physical shares exposure in your portfolio. This is because in some cases it can be more cost effective to open a short CFD trade as opposed to selling the physical shares — only then to buy them back at a later date.
- If you have a number of shares that do not fluctuate much but pay a constant dividend and constitute long-term investments, then you could use leverage to trade these companies using a dividend stripping strategy
9.Contracts for Difference (CFDs) are relatively easy to learn and much less complicated to trade than options or warrants.
10.If you do not hold your CFD position open overnight you will not incur any financing charges. And when you trade CFDs short, you receive interest payments for every day that you hold a position open.
11.As CFDs are marked to market every day, when you have a winning position your account size grows daily. Unlike stocks, you do not have to sell out of your winning position in order to benefit from the increased price.
12.As you are only holding your positions for a short time-frame you are not locking up your cash, which means that when you see a trading opportunity you will have sufficient funds in your account to place the trade.
13.Compared to futures, the minimum contract size is small, meaning a minimal amount of money is needed to trade in them.
- If you are using CFDs to trade on an intraday basis you will not incur any financing charges
15.There is no expiration date, avoiding the complications that arise from this when trading futures or options.
16.As CFDs count for capital gains tax, any losses can be offset against other capital gains.
- If you want to sell your shares to realize a capital loss for tax purposes but want to keep a position in them, you can use CFDs.