Since the advent of the global financial crisis, Contracts for Difference (CFDs) have emerged as one of the most flexible and versatile vehicles of investment. A CFD is a contract to exchange the difference in the value of a financial instrument between the time a contract is opened and closed. You can select the market in which you want to trade the CFD; namely, the stock market, forex market, or commodity market. Whichever the market, instead of making a full physical purchase, you open a CFD. Because of the ease of trading, CFDs are becoming increasingly popular, especially with risk-averse investors.
CFDs vs. commodity trading
Contracts for difference are versatile since they allow you to trade on a range of financial markets, the stock, forex, and commodity markets. The word commodity conjures up images of the futures market, where commodities have been traded for decades. In fact, the commodity markets are arguably one of the oldest forms of trading. Commodities include agricultural products such as corn and wheat, energy products such as oil and gas, and base and precious metals, including gold and silver. As is well known, the futures markets have long been associated with speculation and risk, although they provided a good hedging mechanism to manufacturers against raw material inflation. However, direct investment in a commodity called for deep pockets. Alternatively, buying shares of a resource company entailed looking at other parameters of investment, such as the management and track record of a company. However, in recent years, commodity contracts for difference have emerged as an affordable alternative to investing directly in a commodity or in a commodity-oriented company.
Sign a commodity CFD to start benefiting from the commodities market
In the past, to benefit from a change in the price of a commodity, you had to buy that commodity physically. However, commodity CFD trading has changed all that. With a CFD, you can invest in the price of a particular commodity without actually having to own that commodity. It is similar to opening a CFD instead of buying shares of a company and, as an investor, you can profit from price movement without owning the underlying shares.
Commodity CFDs offer a number of benefits compared with futures contracts. For instance, with a futures contract, depending on the commodity, there is the possibility or risk that you will have to take delivery of the underlying commodity. However, in the case of CFDs, you do not own the actual commodity and you are simply trading the price of these commodities. You are always ensured of a cash settlement. Further, with CFDs, you enjoy the inherent advantage of trading commodities on margin. This margined nature of CFD trading gives the investor the ability to leverage the transaction. This means that you only invest in a small percentage of the overall value of the trade but are taking on the whole profit. Since the margin required for trading CFDs is much lower than investing in futures, it means you will pay less for a position in the same number of commodities. More importantly, you pay less when trading commodity CFDs because you do not have to take the standard size traded on the futures market, which can be substantial for a small trader.
According to a news report, more traders are showing interest in trading CFDs on the Asian markets. The Asian markets are adopting fintech rapidly and, with the help of state-of-the-art trading platforms, are attracting investors from all over the world. This reflects the growing global popularity of CFDs, which presents opportunities to investors in CFDs to benefit from the markets round the clock.