CFDs CFD markets offer flexibility in margin requirements

CFD markets offer flexibility in margin requirements

One of the main drivers of traders to the CFD markets is that contracts are not standardized. While the futures markets give you a standardize contract size, the contract for difference markets are a bit different, because you are betting on the price move itself, not the actual market. What I mean by this is that you can trade as little as one share in a stock, rather than buying a full lot, or 100 shares. If you are to trade the futures for Apple for example, there is a standardized size that is far too expensive in the form of a lot for most retail traders.

In this example, we will take a look at the silvers futures market. The “SI contract” is 5000 ounces. While the futures market does give you an opportunity to pick up silver cheaper than you would by purchasing it outright, the futures markets are expensive to get involved with. For example, buying the SI contract through US futures markets demands an initial margin that is larger than most retail accounts. To buy one contract at the time of recording, you need to have $3960 as margin. Compare that to the average CFD broker out there that can offer is much as 50 to 1 margin. In other words, if the silver market is currently trading at $17.50, that means that a full contract is worth $87,500. If the broker offers 50 to 1 margin, you could trade an entire contract with as little as $1750 for margin.

Better yet, you can trade 0.25 lots, for only $437.50 for margin. This allows you to trade a much more reasonable size and opens up a world of possibilities as you can now trade precious metal. Obviously, each market is a little bit different as far as the initial margin needed at the futures exchanges, but this gives you an idea as to just how innovative and helpful CFD brokers can be in this aspect.

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