Advantages of CFDs
Oscar Markets offers flexible trading conditions across a broad range of CFDs covering Indices, Energies, Metals, CFDs on Commodities and more.
A CFD, or Contract for Difference, is an agreement between a trader and a broker to exchange the difference in the price of a financial instrument between the time the contract is opened and closed. This means you don't own the underlying asset; instead, you speculate on its price movement.
CFDs are versatile investment tools gaining popularity for short-term trading. They offer efficient capital utilization, portfolio diversification, and hedging opportunities. Discover the benefits of CFD trading below.
Speculate in Both Rising and Falling Markets
CFDs are derivatives based on an underlying instrument. There is no ownership of the underlying asset, however they allow you to participate in the price movement of the asset. This means you can potentially profit in both rising and falling markets.
In a rising market you would look to buy a CFD and then sell at a later date. This is called ‘going long’.
In a falling market you would look to sell a CFD position first and then buy it back at a later date closing out the position. This is known as ‘going short’.
Efficient Use of Capital
Hedging Other Investments
The ability ‘go long’ as well as ‘go short’ with CFDs means that they are a great tool for hedging an existing portfolio. They are a cost effective alternative to selling the portfolio prematurely and can be used to provide ‘insurance’ against adverse price movements.
For example, if you have a long-term portfolio that you wish to keep, however you are of the view that there is some short term risk to the value of the portfolio you could use CFDs to ‘hedge’ your positions. If the value of the portfolio falls the profit you make on the CFDs will offset the losses in your portfolio.
Flexible Contract Sizes
The contract sizes of CFDs are often less than the typical contract size of the underlying instrument which means you can gain exposure to the price movement of the instrument without a significant deposit. Flexible sizing allows you to tailor your trading according to your risk management criteria.
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