PXBT is a regulated broker, which is about to shake things up with a tailored approach to emerging markets and some of the most favourable trading conditions in the industry. Among the main features PXBT offers to traders is the ability to trade CFDs on Indices and Commodities, as well as a variety of FX currencies.
A CFD is a contract for difference – a type of financial derivative that enables traders to speculate on the price movement of an asset without having to own or hold the underlying asset itself like in traditional assets.
While investors often stick to traditional assets and seek to buy low and sell high, holding a position sometimes for years at a time, traders seek more sophisticated short-term solutions such as CFDs, in an effort to find more frequent trading opportunities.
These are the two important distinctions, but aren’t the only benefits to trading CFDs over traditional assets as we elaborate below.
Key benefits of CFDs
No ownership & custody
With CFDs, the trader doesn’t hold the underlying asset, eliminating custodial risks from the equation. With traditional assets, investors are in custody of the asset itself, or must rely on exchanges to be custodians, exposing the assets to added risks from hacks or account intrusions.
The use of leverage
CFDs are commonly traded using margin and leverage, which means that traders can open position sizes much larger than what their capital would normally allow for. For example, 100:1 leverage on a $100 position would enable a $10,000 position, using the same capital. If a traditional asset moves 10%, the $100 position would gain $10 in profit. However, using 100:1 leverage, the same 10% gain would be $1,000 in profit. It is important to note that while profits can be amplified using leverage, losses are multiplied as well.
Trading rising and falling markets
Since CFDs are based on the price of an underlying asset, and the trader isn’t required to hold the asset itself, it is possible to trade in both directions of the market using long and short positions. With a traditional asset, earnings can be made only when the value of the asset rises. With a short position on a CFD, a trader can also potentially generate a return when the value of the underlying asset falls.
More advanced trading strategies
CFDs don’t just allow for trading in both directions of the market, but can also be used to create hedge positions, managing risk. Even investors who do choose to hold traditional assets can find added value in protecting capital with a hedge short position. Access to a wider range of markets
Because CFDs are derivatives contracts based on an asset’s price, CFD brokers typically provide access to a wider range of markets than traditional asset exchanges. For example, some brokers like PXBT allow access to Forex, Indices, and Commodities from a single account. An investor might instead need to buy and hold traditional assets on multiple exchanges to achieve the same level of portfolio diversification.
Lower transaction costs
Compared to traditional assets, which often come with high transaction fees, broker commissions, and regulatory fees, CFDs are more cost efficient. CFDs typically have lower fees associated with positions, only charging a small spread or an overnight financing fee. PXBT, for instance, offers some of the industry-lowest fees.
Customization and flexibility
Thanks to lower transaction costs and trading on margin, CFDs provide more flexibility with position sizing and encourage a higher trade frequency without fear of eating into capital. Using leverage for larger positions with less capital, traders can also customise their risk tolerance on a per position basis.
Around-the-clock market access
CFDs are derivatives that typically trade 24 hours, five days a week, compared to traditional exchanges which only trade during regular business hours.
Trading CFDs with PXBT
PXBT is a regulated Forex and CFD broker which is about to make its debut in 2024. In addition to a host of Forex currencies, the broker also offers CFDs on Commodities like Gold, Silver, Gas and Oil, as well as on Indices like the S&P 500, FTSE 100, and Nikkei 225. As a CFD broker, PXBT features advanced trading tools, ultra-tight spreads, extremely low fees, leverage, 24/5 market access, and a high level of flexibility for traders.
Interested in trading CFDs with a safe, secure, and regulated broker? Check out PXBT, a broker with ambitions to become the most popular platform for traders globally.
Disclaimer: The information provided herein is for informational purposes only and does not constitute personal recommendation and/or investment advice. Past performance is not a reliable indicator of future results. The financial products offered by the Company are complex and come with a high risk of losing money rapidly due to leverage. These products may not be appropriate for every investor. You should carefully assess whether you understand how these leveraged products operate and whether you can tolerate the high risk of losing your money. PXBT Trading Ltd does not serve clients from Restricted Jurisdictions as listed on its website.
