What are the advantages of CFD Trading for businesses?

In recent times, the diversification of the global financial market has helped to create an increased range of assets and investment vehicles for traders to leverage.

This includes so-called ‘contracts for difference’ (CFD) trading, which was home to an estimated 280,000 individual products in 2017 and is currently dominated by more than 100 FCA-authorised service providers such as Oanda.

There’s no doubt that CFD trading offers a number of innate advantages to investors, particularly in a volatile and depreciating economic climate where the value of assets typically depreciates.

We’ll touch on this further below, while asking whether or not CFDs offer a viable option for business investment.

CDF Trading – An Introduction

In simple terms, CFD trading is a flexible investment vehicle that enables traders to speculate on the performance of particular assets without ever assuming ownership of the underlying financial instrument.

As a result of this, investors are able to profit directly from price fluctuations in both directions, as a CFD only focuses on the underlying asset’s movement between the trade entry and the final exit point. 

With this in mind, it’s possible to profit even as the value of your chosen asset depreciates, while there’s also the potential to leverage margin and earn far more than your initial deposit. 

Of course, this also means that you can lose far more than your original investment, but the relatively low-cost nature of CFD trading (along with the inflated levels of leverage involved) typically help to compensate this risk. 

Additionally, CFD trading can be used to trade price movements in a huge range of markets, including stocks, commodities, indices and currencies.

This is also attractive to both individual and corporate investors, as it enables them to create a diverse and rewarding portfolio that provides a unique opportunity for them to leverage their core industry knowledge and expertise.

Is CFD Trading a Viable Option for Businesses?

This represents an interesting point, as CFD trading offers a direct opportunity for business owners to leverage their in-depth insight to trade market trends and price movements to their advantage.

In this respect, entrepreneurs in any market or industry can theoretically leverage CFD trading to their financial advantage, so long as they understand the core nature of derivative trading and are able to apply their knowledge accordingly.

On a similar note, modern trading platforms also provide business owners with a unique opportunity to learn about the core trends that are continuing to shape their industry.

So, by initially using a demo account and accessing a simulated market environment, firms can hone their trading skills while also looking to identify opportunities that can drive commercial growth going forward.

However, it’s fair to say that CFD trading may not be a viable option for all businesses. After all, although the margin-based nature of this vehicle enables firms to enter the market for less, the potential for significant losses means that SMEs with minimal resources should proceed with caution.

Similarly, businesses that operate in highly volatile and changeable markets may increase the potential liquidity risk. This refers to a company’s ability to pay its incurred debts without significant losses, which can result in instances where investments lack marketability and cannot be either sold or bought quickly enough to optimise outcomes.