From an investment point of view, the Swedish capital markets offer real prospects to all sorts of investors. Contracts for difference, also known as CFDs are increasingly becoming popular among Swedish investors. This type of trade is also known as derivative trading, where investors are expected to speculate on the rising or falling of products like stocks, commodities, indices, currencies, and government bonds in both local and international financial markets.
How CFDs Work
Before looking at some of the possible reasons, contracts happen to be quite appealing to Swedish Investors and this write-up looks at how CFD handel works. In this trade, the trader does not transact with the underlying commodity (stock, shares, currency pair, etc.). Instead, you only buy a number of units associated with a particular product, based on how you think their prices will fair in the markets. Each change in the commodity you are trading on attracts a profit that is proportional to the total number of units you have bought or sold.
Why Swedes Prefer Investing in CFDs
The main attraction towards CFDs over traditional securities is that this form of trade requires a smaller amount of capital. It is a popular investment option among Swedish traders, and here are some reasons why its popularity is expected to increase even further.
Ability to Trade on Different Markets
Contracts for difference can be used on thousands of markets, including shares, commodities, forex, and cryptocurrencies and a lot more. Even better, you can trade on anything you want in a single platform. The ability to trade outside the official trading hours on global markets.
Mirror Trades in Underlying Markets
CFDs are designed to mimic an underlying trading market. This implies that buying a CFD share in AstraZeneca, for instance, is almost similar to purchasing a real share. Thus, if you need to invest in an amount equivalent to 100 actual shares, you only need to buy 100 CFD shares or units. Ideally, trading on contracts for difference allows traders to make real money using relatively lower investment amounts.
Direct Market Access
Seasoned traders are entitled to direct market access (DMA). This feature gives traders an opportunity to see and draw insights from the order of books. Thus, instead of relying on the buy or sell prices, you get an opportunity to follow the bid and offer prices in real time. While this can be a powerful tool, it does not come with an assurance for making profits.
CFDs allow investors to either go short or long, which makes out quite flexible compared to other types of investments. Its flexibility is emphasized by the fact that an investor can exchange the difference between the opening and closing prices. Depending on how your expectations, you can trade on markets that are headed down or down based on the prevailing market conditions. According to Richard Drieuhas, who notes that, "without significant price movement, you cannot achieve superior gains" the flexibility of contracts for difference could be their major strength.
It is worth noting that besides the opportunity to make real cash, investing in CFDs is highly speculative. Nevertheless, the best thing about contracts for difference is the ability to trade in full price movements of stocks, equities, commodities, etc., with a fraction of the capital that would have otherwise been required.
Published by Charlesa Gibson