Why Trade CFDs?
CFDs are leveraged products, and on the iToroStocks platform, you will be able to view the leverage and margin requirements for trading your favorite asset. Just select the asset you wish to trade, and you will be able to add or reduce your trading lot sizes depending on your trading capital balance. It is important to understand how leverage works in order to use it to your benefit and limit the risks.
There are no exchanges involved when trading CFDs, and your broker takes control and allows you to open and close trade positions in the market quickly. You do not own or have the obligation to deliver the underlying asset, you are merely speculating on the price changes. The prevailing price of any CFD reflects the live value of the underlying asset. The danger is that during volatile or falling markets, you should be able to exit your open positions with ease.
You can trade CFDs of just about any financial instrument you want; whether it is forex pairs such as the EURUSD, commodities such as gold, or stocks such as Microsoft and indices such as the Dax 30.
With an iToroStocks trading account, you effectively have access to virtually all the financial markets around the world.
By observing the trends in the financial markets, you can easily understand that CFDs offer more benefits to traders than other investment systems. As an example, let’s say you wish to trade Microsoft stock and your investment capital is $2,000. If the stock is trading at $200 a share, you will be able to buy 10 stocks if you are trading via a traditional stockbroker. If the stock appreciates by 10%, or $20, you will have earned a profit of $200. Now, consider that you are trading Microsoft stock CFDs with iToroStocks. With a leverage of 1:100, you will be able to buy 1000 stocks of Microsoft with $2,000. A 10% price jump will earn you a profit of $20*1000 stocks, which will be $20,000.
This is a hypothetical case, but you may want to limit your risk as well. You may place a Stop Loss order at $195, which if triggered, will have cost you a loss of $5*1000, which will be $5,000. In this case, you will be risking $5000 for a potential profit of $20,000, which is an admirable risk/reward ratio.
When trading CFDs, it is all about risk management and profit enhancement. There are indeed risks involved, but the advantages outweigh the dangers. To learn money management and effective risk management strategies, visit the iToroStocks Trading Education section on our website.