Understanding suitability of CFDs

In order for this model to work we need to know three things; our entry price, our exit price & our available capital.

The ability to trade CFDs has greatly improved the trading opportunities for a great many traders. They are an ideal trading vehicle for traders with a relatively short-term time horizon and a desire to increase their exposure on a given level of available capital. They may not be so suitable for traders with a  long term horizon due to financing charges which can build up. Similarly, traders that are unable or unwilling to close open positions or manage their trades might find CFDs not suitable for them.

No matter what your reason for trading, you need to pay special attention to the amount of money that you allocate to your trading account. What would your financial situation be if you were to lose the whole lot.

Finally, anybody considering adding CFDs to the trading toolbox should make sure that they understand the risks associated with this product. As with any financial product, the risks will be significantly higher if you don’t take the time to understand the product.