Delving Deeper Into The Subject Of Leverage In CFDs

The ‘Contract For Difference’ or CFD in short, is a steadily growing trading practice that has earnestly captured the attention of the eager traders, who are willing to experience an uncomplicated trading practice that is topped with profitability as the perk due to the powerful concept of leverage supporting it. Yes, CFD is assuredly an uncomplicated trading practice, where apart from its straightforward protocols, you are pleasingly exempted from owning the underlying asset physically, which in turn prevents you from facing too many inconveniences like, transportation (in case of commodities), storage, maintenance charges, security and so on.

With the added advantage known as the leverage, the merits of CFD trading practice has only increased multifold, which we are here to discuss a little detailed.

What is leverage?

Leverage is a concept of this CFD trading approach, in where, the trader is exposed to a worthier trading position, despite the lower trading capital and therefore, the ability to enjoy a more profitable outcome during a favorable scenario, and at the same time, to incur devastating losses during an unfavorable market scenario is very well possible.

 

 

How does it work?

Let’s understand this with a simple example. Let’s say you are eager to buy 100 shares of a company, whose per share price is 100$. If you are approaching to buy them using any traditional approach that devoid the concept of leverage, you are expected to pay 100×100 = 10000$ to acquire the required number of shares. If these shares make a profit of 20$ each, then your entire profitability stands at 2000$, whereas for a loss of 20$ each, your entire loss would be still 2000$ only.

If you have decided to approach these shares with the concept of CFD trading practice, where the margin requirement is only 10% as decided by the broker, you only have to pay 10% of 10000 that is 1000$ to open the position, appreciably. In the event of a profitable scenario, as discussed above, your profitability would be still 2000$, which is twice the invested amount. But, during a loss situation, you would lose twice your initial deposit, which needless to say is, devastating.

What can be traded

From the conventional stocks to contemporary cryptocurrencies, everything can be traded using the CFD approach, satisfactorily. With the surging growth in the popularity of cryptocurrencies if you are so eager to trade them using this CFD trading approach then, do so with the help of automated trading platform like the Crypto VIP Club that can boost the profitability of your trading practice by accurately predicting the market movements, any day! To better know it’s working, this Crypto VIP Club review is the best!