CFD - higher expected returns, better diversification

Stability and long-term growth

Core asset classes include, for example, equities or bonds. These can be invested in either directly or through the now popular and widespread ETFs. Through these products, investors can choose riskier or less risky instruments and diversify their portfolio according to their risk profile or investment horizon. These products are more suited to long-term investing or as an alternative to pensions, as their returns and volatility are not high. Their main features are therefore stability and long-term

Higher returns, higher risk

However, there are also products available on the market today that have the potential to earn traders much higher returns in a shorter time with a proactive approach. Those who aim to increase their earnings through active trading, while being able and willing to take on adequate risk, can explore derivatives such as futures, options, or the increasingly common CFDs.

Futures and options are traditional products traded on exchanges, where holders may receive the underlying asset (such as shares or commodities) during the holding period. In contrast, CFDs are cash-settled instruments traded over-the-counter, where traders do not take physical ownership of the underlying asset upon purchase. Therefore, CFDs provide another avenue to diversify your investment portfolio with higher return potential.

Leverage and Margin - a lot of bang for the buck

One of the main advantages that CFD products offer to their potential clients is the use of leverage. This allows you to use much less capital when trading these products than is needed when investing in conventional products.

For example, when the leverage on a product is set at 1:100, this means that a trader only needs $1,000 in his account to open a trade of $100,000. More specifically, only $1,000 of his account will be used for this trade and this amount is called margin. The broker offering the product will take care of the rest. In short, the trader will only use $1,000 from his account, but the 1:100 leverage guarantees that he earns as much as if he had used $100,000 for the trade.

Thus, by using leverage, it is possible to make interesting profits even in markets that do not experience large movements. Leverage multiplies price movements and thus increases potential profits.

Higher returns in these products inevitably entail a higher risk of losses. For this reason, these products are particularly suitable for more experienced investors and traders who have knowledge and experience of the workings of the financial markets and understand the pitfalls of leveraged trading. CFDs are more for short-term traders who are familiar with the rules of risk management and are thus able to make the most of the return potential of CFDs, while at the same time not struggling to cope with the greater risk associated with them.

Short Selling - profits in every situation

One of the great benefits of CFDs compared to conventional investment products is the ability to use short selling without significant restrictions. Thus, traders trading CFDs are not constrained by the need to increase the prices of the underlying assets. They can thus speculate on price increases, but also on price decreases. This is not possible with conventional shares or bonds, for example. An investor who expects, for example, Tesla shares to fall cannot normally open a short position on the stock exchange. However, with CFDs on Tesla shares, he can do so without any restriction.

CFD products can thus also serve very well as a hedging instrument for more experienced traders. Thus, in their regular account on the stock exchange, they may have bought shares of a selected company (for example, the aforementioned Tesla), but in an account where they trade CFDs, they can speculate on short-term price drops when Tesla runs into problems or announces unexpectedly bad results. Or an investor may have bought gold in physical form and speculate on short-term price fluctuations through CFDs.

Broad offer

One of the undeniable advantages of CFD products is their comprehensive offering. Unlike conventional products, where an investor might need separate accounts with different brokers for shares, commodities, cryptocurrencies, and bonds via ETFs or funds, CFDs provide a single platform. This allows investors and traders to access a wide array of products—including shares, commodities, cryptocurrencies, and currency pairs—all in one place.

FTMO - a variety of offerings and a minimum of equity

If you are interested in CFD products, try equity-free trading and keep the risk of losing equity to a minimum with FTMO's offerings. As a leader in the modern prop trading industry, we developed a unique Evaluation Process for traders, consisting of an FTMO Challenge and a Verification, specifically tailored to discover trading talents. After successfully completing the Evaluation Process, FTMO will provide you with an FTMO Account in a demo environment with a balance of up to $200,000 in fictitious funds. During this demo trading phase, you have the opportunity to earn a Reward of up to 90% of your simulated profits based on your skills.