4 Reasons Why CFDs are Extremely Beginner Friendly

CFDs have been fully embraced by investors who are looking for multiple ways to diversify and grow their portfolios. This is mainly because of not only the unlimited CFD assets that one can trade in, but also the freedom and incredible earning potential that these derivatives offer.

As it turns out, beginners can also benefit from trading in CFDs. In fact, due to the unique characteristics of these financial instruments, they seem to have been designed to beginners. They are simple to understand and trade. They can be traded using user-friendly trading platforms like MT4 (MetaTrader 4), and they provide unlimited earning potential for even traders who have limited funds. The following is a breakdown of the main reasons why every beginner needs to start thinking about CFD trading.

Offers great leverage opportunities

When you are trading with CFDs, you can bet on underlying assets that are way more valuable than your capital. This is because, with CFDs, you don't have to put up the full amount of money. To get into a position, all that is required is just a fraction of the underlying asset's value. What this means is that you can get into positions that have the potential to be massively profitable even when you have limited funds.

Since most beginners have limited capital to work with, this is something that is to their advantage. It improves their odds of making a healthy return and eases the trading restrictions that come with having limited funds.

Freedom to trade

In most cases, trading in CFDs will give you access to a lot of markets. This creates an endless number of possibilities as far as profit-making opportunities are concerned. Furthermore, this enhanced access will also give you the ability to trade on a 24-hour basis since markets around the world open at different times.

These financial instruments also offer beginners a way to bypass restrictions that some markets place. For example, in some markets, a person cannot start trading unless they meet a certain capital threshold. If you choose to use CFDs, this is a restriction that will not limit your access.

The freedom to trade that CFDs give you also extends to what securities you can bet on. You can almost find a CFD vehicle for any financial instrument that you are interested in. It means that if you are more versed with indices, cryptocurrencies, or commodities, you can always get the opportunity to make money. This is something that improves your odds of making the right moves since you can always restrict your trading to industries or sectors that you interest you.

Fewer day trading requirements

While rules boost transparency and prevent exploitation by bad actors, they sometimes limit a trader's earning potential. For example, some markets have restrictions on shorting, in that they keep investors from entering into shorting positions during certain periods. These restrictions sometimes even extend to margin requirements. Such rules inadvertently limit a beginner's earning potential.

Generally, CFDs do not come with restrictive rules. Since they do not involve actually buying or selling underlying assets, they have fewer restrictions. With these securities, your earning potential is virtually unlimited.

Low and simplified fees

One of the main reasons why beginners fail to make a positive return on their investments has to do with trading and brokerage fees. These fees tend to eat up the little profit that they make. With time, they tend to start depleting their capital, something that eventually diminishes their ability to deploy winning trading strategies.

When it comes to CFD trading, the fees are generally minimal. In fact, a good portion of brokers does not charge any trading fees for trade entries or exits. With time, the savings that accrue from avoiding these fees usually build up and they are sometimes the difference between successful traders and those who don't make it.

Given all these benefits, it is easy to see why CFDs are increasingly gaining popularity among new traders.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes