The contract for difference has a variety of advantages as well as risks of owning a security with no ownership attached to it or have to take any physical delivery of that asset. They include the following:
- CFDs are normally traded using the margin which means the broker allows investors in borrowing money to increase the size or the leverage of the position to gain amply. Brokers will require traders to be able to maintain certain account balances before allowing such transaction to happen.
- To trade on the margin CFDs does provide a high leverage as compared to the traditional trading. The standard leverage in the CFD market can be as low as 2% margin requirement and go as high as 20% margin. When the margin requirements are low, it denotes there will be less outlay of capital and higher potential returns for you as a trader
- Fewer regulations and rules surround the CFD market when compared to the standard exchanges. Because of that, the CFD can have a capital requirement which is lower than required in the brokerage account. In most cases the traders can open an account with as little as $1000 with a broker. At the same time. Because CFDs tends to mirror on the corporate actions which are taking place, as an owner of the CFD, you receive cash dividends thereby increasing your return on investment as a trader.