Anyone prospecting to deal with CFDs will wonder about the period that will be best for holding a CFD position.
In CFDs, you have the advantage of using leverage, which means that you contribute a portion of the funds required, and the broker will lend you the remaining funds with which you will pay interest for each day. Therefore, you need to consider this before holding a long market position carefully.
Considering that CFDs lack an expiry date, a trader can hold both long-term and short-term positions in the market provided that they can finance the situation.
However, it is good you note that holding a long position will become expensive as time goes by, let us say from four weeks. During this time, you will incur financing charges.
Holding CFDs for short term position is, therefore, the best option.
Trading with CFDs happens on margin. This means you have borrowed costs of an underlying asset and you are paying interest each day. As such, long term CFD holding calls for careful thought.
Your CFD financing fees rest on when you, as a trader, hold your position after market closure. CFDs do not expire. Therefore, you can hold both a long and a short position, so long as you have funds for your position.
Long CFDs begin to get real expensive past 6 weeks for they attract levy financing charges. This makes CFDs unattractive for long investment terms. As such, CFDs make best instruments when traded short term and market speculation.
Each closed day is a trading session end. If you hold a CFD still, brokers charge a holding fee. Costs depend on whether you have bought or sold at the end of the day, and vary broker to broker.
CFD is the abbreviation Contract for Differences. CFD position means the ability of a trader to hold a contract for a specified period, and the period can either be days, weeks, or even months. To keep or not depends on the investors' ability to handle the risk.
In this form of trade, there are no physical goods, shares, or even securities. It is a simple prediction in the change in price. Trade instruments are inclusive of shares, commodities, indices, exchange-traded funds, also known as forex and cryptocurrencies. One does not own them but only predicts if the price will fall or rise during a period. Many investors in the stock market will invest some money to foretell what will happen before buying the actual share. Brokers are the main component of the trade as they will help one to invest and assist in the business. The broker acts as a game partner as he earns when you lose and vice versa.
Traders are encouraged to hold CFD positions for long. However, it depends on the type of CFD one is trading in. Different kinds of CFD have different levels of risks. For example, if trading in commodity CFDs, which are things like gold, soybeans, corn, and wheat as the underlying asset, it is easier to predict than share CFDs. In share CFDs, the underlying share has other influencers to predict the price. Therefore holding a share CFD for long should be traded with caution.
CFD positions in two broad categories. These categories also influence the time one can hold a CFD position. These are;
Short CFD position
Short CFD position the type of contract held when selling a contract since one has no control over who will be interested in it. It's owned by the trader when predicting a fall in the price of an underlying asset. He, therefore, chooses to dispose of before to avoid the loss.
Long CFD position
In a long CFD position, one will buy an asset and hold to speculate on price rise. If the prediction was correct and selling time was set right, the trader will gain a profit while the vice versa is also true. Therefore, when taking a long CFD position, one should consider the influencer's effects on the underlying asset.
Both the above positions are not time-bound; therefore, a trade determines using his or her ability to hold to let go of a CFD position. The broker will charge you a holding fee by close of business every day, depending on the CFD contract one will be holding. In simple arithmetic, if one will be in a long CFD contract, i.e., speculating for a price rise, it will be getting expensive as the days trickle down
There will also be a financing levy charge for every long CFD position held above 4 -6weeks. If you total the holding fee and financing levy, this makes it way expensive to maintain a CFD position more than 6weeks.
In a summative tone, it is advisable that one holds a CFD position to speculate on trade but not as a significant form of commerce. Its main advantage is that you will be able to observe the trend without necessarily owning the underlying asset; therefore, cushioning one in case a loss occurs.
A Contract for Difference (CFD) has no expiry date, therefore traders can hold a long or short CFD position for an indefinite period of time as long as they have the funds to hold the position.
Still, there’s a rule of thumb which says that long CFD positions tend to get pricey after 4-6 weeks because impose a financing charge.
That’s why it’s recommended to avoid holding a CFD position for a long period as it’s much more efficient to trade them short term. The long-term holding of CFD is something traders should consider with great caution.
Hope that helped.
For more information on CFD trading, have a look at these articles
- Compare CFD Brokers: https://www.asktraders.com/broker/cfd/
- Read our review of Admiral Markets: https://www.asktraders.com/broker-reviews/admiral-markets/
- Read our beginners guide to CFD trading: https://www.asktraders.com/learn-to-trade/cfd-trading/beginners-cfd-trading/
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