Why CFD trading is considered as highly speculative
CFDs or contract for differences are basically derivatives of an asset. When buying CFDs, you are not buying assets; you are buying the future movement of the shares.
So, if you buy CFDs, you are basically buying the difference between the current value and the future value of the assets. If it’s positive, you make money; if it’s negative you lose money.
With that being said, many consider CFDs as speculative; this is partly the reason why CFDs only available on a certain group of countries, such as United Kingdom, Australia, Singapore, Sweden and some other countries. CFDs are not permitted to be traded in the US.
CFD trading can be a lucrative business
Just like stock and forex trading, you can treat CFDs trading as a real business. Of course, there is a thin and often blurry line between trading as an individual and as a business. But as a legitimate business, there are some requirements you (and your team) must have in order to succeed.
1. CFD trading skills
Clearly, you must have the skills and experience in CFD trading. It’s speculative in nature, so your skills will determine your business’ ability to minimise risks – you can even make profits with no risk, if you know how…
2. Trading systems and strategies
Like any good business, do things in well-organised ways can make a real difference, measured in revenues and profits. If you and your team are skilled in CFD trading and you are trading frequently using systematic methods, you can manage the risks involved and make hefty business profits.
3. Investment sizes
Of course, you should start small. But what makes your business a successful one is your ability to secure capital large enough to make healthy return of your capital investment. Be sure to have access to fund sources
4. Relationship and partnership with brokers
Partnership is definitely a crucial key in your CFD trading business success. Partnering and building relationship with the right contracts for difference brokers can have detrimental effects on your business profitability.
Takeaway
Are you ready to start a CFD trading business? If so, be sure to surround yourself with the right people – lawyers, accountants, and trading partners – including CFD brokers.
Do your due diligence and make sure that trading CFDs as a business is what you really want; if you are not sure, simply stick to trading at personal level… and reschedule your plan to start a business.
Ivan Widjaya
On starting a CFD trading business
Reference: en.Wikipedia.org, StockWatch.com.au