Contracts for differences is a concept that has been gaining immense popularity over the past few years due to the potential it holds in broadening the scope of trading. Although many people are fairly new to this trading strategy, they do not find it hard to digest the complexities because it has connections with the already existing contract types. While diving deeper into the subject of CFDs, you are sure to find more layers to it than what you primarily stumbled upon.
1. Share CFDs
In share CFDs, the underlying stock that is linked to the CFD is the origin of the price. It is the most common CFD to be traded in the marketplace. Share CFDs will be as equally difficult as trading stocks, and for anyone who is experienced with the latter can find it easier to deal with. But you shouldn’t jump right away just because you know how stocks work. There are a few differences that you need to be aware of before investing in share CFDs.
2. Index CFDs
This type of CFD is dependent on the performance of a specific index rather than the price of the stocks. The traders involved in the financial transactions of index CFDs prefer contracts based on index performance because it has a few advantages linked to it. The possibility of high leverage, volatility, and liquidity are the reasons for which this type of investment is preferred more. International markets that are otherwise costly also seem accessible when indices are traded.
3. Commodity CFDs
All physical assets that are under demand are collectively known as commodities, and they are classified into two. The hard commodities are mined in the process, whereas the soft commodities are grown. Using CFDs can reduce the complexity of trading, which is otherwise so convoluted with the varying sizes, expiry dates, and different exchanges for the commodities. No more confusion lingers on regarding the exchange to approach for specific commodities when using commodity CFDs, and they also provide lower trading costs.
4. Treasury CFDs
When the value of treasury notes is to be speculated by a trader, he/she will use the treasury CFD. The treasuries are national government-issued bonds that are a safe long-term investment.
5. Sector CFDs
With the sector CFDs, you get to have a bigger picture of the economy, thereby allowing you to choose the profitable areas for the trade without having to analyze each company individually.
Apart from these five major CFDs that are available to the traders, the inflation CFDs and carbon trading CFDs are also beneficial.