When Contracts for Difference (CFD) is being tackled, questions if it is suitable for long-term trading always arise. This is because, common knowledge states that when you trade CFD, you shouldn’t be holding the position for a long period of time. In CFD, interests are being charged from the contract for taking long positions. When this happens, the interest will get doubled if you see CFD as a form of investment rather than simply a trading instrument.
If you come to think of it, all of these make sense. If you are investing your money long term, it is best to buy something without continuous maintenance charges. But just like landlords in the rental business, you will be needing to pay maintenance fees and charges then you can only figure the expense on the calculation of your profit.
Going Short or Going Long
Two important points need to be tackled here. Commonly, you have to pay an interest rate which is about two or three points for a base rate. This means that you will be paying 9% every year and this amount is being charged right into the total value. Meanwhile, if you are having a bearish outlook, and choose to go short on CFD trading, the interest rate is 3%.
The second point here is the fact that CFD is a leveraged product. If you choose to take a long position and your instinct is right, then you can get a huge profit. You will only be paying 10% of the underlying asset’s value to open a trading position. In case the value goes up by 1% every month, the trending stock becomes minimal and that would equal to 12%/year. After the interest, you should gain 3% of the underlying asset’s value. If you have an initial investment of 10%, you will get a profit of 30% per year.
Short-term Trading Opportunities
Most active traders would prefer to have short-term opportunities that could take up for a few days or a week. Without a doubt, trading CFDs short term is a good way to make money online. Plus, you won’t have to calculate your profit to compensate with the interest charges. Traders preferring short terms are very particular with the technical analysis. CFD is undoubtedly good for short term trading, considering its flexibility and the different markets as well as the underlying assets hugely available.
But it doesn’t mean that you’ve seen the short term as a better option, you will overlook the objectives set by long term trading considering that the interest rates are not that high making it cheap to take a hold of the CFD for a longer period of time. As mentioned above, there’s no assurance that long-term is needed in CFD trading.
No matter your choice, be it short term or long term trading, you must understand the terms involved in it before you decide. There is no such thing as being ‘lucky’ in trading. You cannot rely on pure luck to handle your trades. You need some knowledge and skills to succeed.