One of the reasons that people rave about CFD (Contract for Difference) trading is that there are lots of different underlying assets that you can trade. And every different market has its characteristics, almost its personality. Examples of types of assets range from currencies and commodities to stocks and even virtual markets such as market indices.
Whatever the asset, the principle of CFD trading remains the same so once you have learned for one market, you can then try others.
Most common asset types
Four main types of assets are used for CFD trading – commodities, currency pairs, stocks, and indices.
Commodities are natural resources and are grouped into two categories – hard and soft commodities. Hard commodities are ones extracted from the ground including oil, precious metals, and mineral ores. Soft commodities are agricultural resources such as crops or livestock. Commodities are the assets we need to function every day and are used in the production process. Commodities can be affected by many factors including geopolitical news, adverse weather, and natural disasters.
Currency pairs include all the main currencies around the world that are part of the Forex market. These include the EUR/USD, EUR/GBP, and USD/JPY. Some platforms also offer the chance to trade in more exotic and minor currencies, and these can be highly volatile with constantly fluctuating prices. It makes them a great trading opportunity for the CFD trader.
Stocks, also known as equities, are the financial security that gives the owner of the stock the rights and benefits of ownership of a company. It is now possible to buy stocks online through an online trading platform. Stocks are often the asset that non-traders are most familiar with and it the oldest established market available today. When you use CFD trading with stocks, you can profit from the movement of stocks but also from stock splits and dividends paid to stockholders. You are also able to leverage your trades which is different to trading with physical stocks.
Indices are a statistical measure of the value of a section of the stock market. A market index usually combines the stocks of companies that represent a part of the economy. An example would be the index that measures the price of oil and gas industry stocks and the health of that overall market. Some of the more popular examples of indices include the Dow Jones, the FTSE 100 and the DAX.
How CFD trading works
Once you have identified what asset you want to trade with, then you can start considering the basics of your trade. Between them, the buyer and seller agree to exchange the difference in price on settlement of the contract. It means you don’t need to own the asset to CFD trade on it.
The main advantage to this is the cost involved. To buy a whole share could cost hundreds of pounds but to trade on it, you might need as little as 5% of the share’s value. Leverage can range from 2% to 20% depending on the type of asset you trade with – so a trade valued at £10,000 with a 2% leverage would mean you only need to have £200 in your trading account, to begin with.
CFD trading means you can start trading with much lower capital than other types of trades. You will need to use a safe and secure platform for your trades, and this is offered through Wilkins Finance CFD. Here you can trade with any of the common assets and find the market that you want to work with to make the best possible profit from your trades.