Short Term CFD Trading
Trading CFDs (contracts for difference) in the short term is the general strategy that most traders take. CFDs are great tools for trading in the short term because of two main factors:
- Margin
- Stamp duty
Margin is covered in detail on this site. CFDs are traded on a margin which is the same as a loan on the position. The margin is typically 10% which means you have a 10x magnification on the profit of your trade. So if you were to open a position of $10,000 at a 10% margin, you would only need $1,000 up front to cover the costs.
If you hold the position for 2 weeks and there is a 10% gain in the price of the stock, you will have doubled your money in that two weeks. This is very powerful if you can spot a trend and jump on it early.
Another benefit of short term CFD trading is that in many countries such as the UK and Ireland there is a stamp duty waver which you would have to pay if you owned the actual shares. This can make a big difference if you are a high volume trader opening short term positions. The savings can sometimes be more than 50% in commission and brokerage fees which can greatly help your bottom line.
Of course with great leverage comes great responsibility. And these large profits can quickly turn into losses if you don’t manage your risk correctly. So be careful when trading CFDs and make sure not to over extend yourself.
