Understanding Commodities CFDs
- The difference between CFD trading and traditional commodities trading
- The benefits of trading Commodities CFDs
The difference between CFD and traditional commodities
The main difference between CFD (Contracts for Difference) trading and traditional commodities trading is the method used to gain exposure to the price movements of commodities.
In traditional commodities trading, an investor would typically purchase and hold the physical commodity, such as gold or oil, or invest in a commodity-linked instrument, such as an exchange-traded fund (ETF) or futures contract.
In CFD trading, on the other hand, the investor does not physically own the underlying commodity but instead enters into a contract with a broker to exchange the difference in price of the commodity between the opening and closing of the trade.
The benefits of trading Commodities CFDs
The benefits of trading Commodities CFDs are:
- Leverage: CFDs allow traders to gain exposure to the price movements of commodities with a relatively small amount of capital, as they provide leverage. This enables traders to potentially generate significant profits from relatively small price movements in the underlying commodity.
- Accessibility: CFDs offer easy access to a wide range of commodity markets, including markets that may be difficult or expensive to access through traditional methods. This can provide traders with greater opportunities to trade in a variety of commodity markets.
- Flexibility: CFDs can be traded on margin and can be shorted, allowing traders to take advantage of falling prices. This provides greater flexibility in terms of trade execution and can help traders to effectively manage their risk.
Congratulations on completing Lesson 2 of 5! But don’t stop now—there’s so much more to learn.
Happy trading, and see you on the other side of Lesson 3!