Posts Tagged ‘cfd disadvantages’

There two general kinds of positions that an investor can make when it comes to CFD trading. These are the short position while the other one is the long position, which is also popularly known as “going long” in the field of financial trading.

On the one hand, the short position in trading usually refers to the practice wherein the borrowed securities are being sold then the borrower will buy another similar asset later on to return it to the original seller. The trader or the seller will be able to gain profits if the prices of the assets will go down or decline between the times that he bought the assets and resell the other similar one. This is because the seller will be able to pay fewer amounts compared to the one that he can receive by reselling such similar assets.

On the other hand, the long position in CFD trading is just like putting your investments to securities like stocks and bonds. The difference of this kind of position is that the holder of this position will be able to own the securities as well as the profits associate from it when their price goes higher. This is actually the more prevalent form or way and practice when it comes to wise investments. Furthermore, an investor do this long position by purchasing call or writing put options on a given underlying financial instrument.

However, both of these positions have their own respective CFDs disadvantage. As a matter of fact, their differences can be their advantages or disadvantages among each other. There are actually at least two (2) aspects that we can discuss about these.

The first aspect is about the price of the position. Of course, they differ on this aspect because a short position has different mechanics from long position. For instance, most of the short CFD positions that are commonly held over the night come with a higher financing cost. However, if we are talking about the nominal cost involved, one long position CFDs disadvantage is the higher price that you will need to be able to trade it.

On the other hand, there are also differences of these positions for the profits that you will be able to enjoy. Of course, long positions in CFD trading will have more secured profits than the short positions. However, its disadvantage is that you will not be able to see the gains you have along the way on daily basis, which is enjoined in short positions.