5 Reasons Why CFDs are Important in 2016

CFD positions have enjoyed a substantial amount of popularity during recent times and this is no mistake. There are numerous benefits that such instruments can provide to the informed trader during 2016. Let us take a look at five unique benefits which are very specific to a CFD trade.

Tax Implications

One very attractive aspect of CFD trading is that under most conditions, these positions are exempt from stamp duties within the United Kingdom. Many online sources also note that re-payments on interest are generally able to be deducted. On a final note, a CFD can be sold before capital gains crystallise. This may help to avoid a potentially hefty capital gains tax payment.

Both Long and Short Trades

CFDs are second-to-none positions in terms of the ways in which they can be traded. Some professionals are concerned that 2016 might be defined by falling markets. This is of little concern for the CFD trader, as profits can be realised during both bull and bear markets. It is only necessary for the investor to correctly predict the movement itself.

A Flexibility in Share Positions

Many quality providers such as CMC Markets offer the trader to execute international positions from a single account. This is highly convenient and much more efficient than being forced to monitor multiple portals and make on-the-fly decisions. This flexibility also extends to the underlying assets that are able to be traded. Some examples of precious metals can include gold, silver, oil, sectors, treasuries and even the indices themselves.

Guaranteed Stop Losses

Some have noted that the risk of a CFD trade revolves around the possibility to lose a substantial amount of capital within a short period of time. Of course, it would be remiss to deny this observation. It is still a fact that informed strategies can help to minimise the risk of such an instance occurring. This is then supplemented with the presence of automatic stop-loss algorithms within many trading platforms. Should a certain price fall through this predetermined level, the stop-loss price is still guaranteed. This is an excellent way to hedge against a volatile market.

Trading on Margin

Perhaps the most notable windfall of becoming involved with a CFD trade during 2016 is the ability to trade on margin. For only a small percentage of the total price of the position (between 5 and 10 per cent for shares and approximately 1 per cent for indices), the trader is able to own the asset in question. This can help to substantially enhance one’s profits should the position perform well. However, losses can be magnified just as easily. While this is a very powerful tool, trading on margin should only be employed when the financial implications are understood.

There is no doubt that CFD trading is set to make a massive impact within the financial markets during the coming year. Appreciating these advantages is the first step in appreciating the possibilities only moments away.

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