The transaction costs for CFD trading always depend on the respective broker. However, compared to classic trading with shares, they are usually significantly lower. With margin trading, however, there is always a borrowing of outside capital. This results in financing costs for long positions and interest income for short positions if they are held overnight. In addition to a provider-dependent surcharge of between two and four percent, the overnight interest rate of the respective national currency is also added.

Risk of loss and margin call

Margin trading offers the chance of particularly high returns due to the leverage effect. It is primarily suitable for risk-conscious, speculative market participants. But what happens if the price does not develop as expected and the trading account does not have sufficient capital. In this case, a so-called margin call is made. The broker informs the customer of his margin obligation and requests him to provide sufficient coverage. If this is not done, open positions can be closed by the broker. Thus, as with futures, there is a potential risk that the losses will be higher than the available capital. The risk is particularly high for stock CFDs that are held overnight. Here, there can sometimes be significant price gaps, which is why the risk should be defined before entering into a position. Meanwhile, some, or the best CFD brokers also offer accounts where a margin call is waived.

Advantages of CFD trading?

Compared to other financial products, CFD trading has some advantages. These include in particular the transparent and uncomplicated process. Private investors do not have to search first laboriously for the security identification number and it in contrast to warrants also calculation of certain key figures required. Also positive is that the price trend of the CFD position reflects that of the underlying almost 1:1. Factors such as volatility or maturity play no role in CFD trading. A relatively new feature allows the setting of volume orders. Here, no specific quantities are traded, but the desired investment amount can be entered directly.

In daily trading, one factor is of particular importance. CFD trading is fast and flexible as well as cost-efficient. The platforms offered by the brokers allow an uncomplicated process, at least in normal market phases. As far as costs are concerned, CFD trading also offers advantages. For example, no commissions are charged for commodities or currencies. For stock CFDs with Exness free swap, they are usually at a very low level, depending on the broker. With increasing growth, the conditions also improve.

Disadvantages of CFD trading

If it comes to the disadvantages of CFD trading, market making is an important issue. In fast market phases, there may be delays in order execution. In addition, there is no body that monitors the trades. The unwinding of a trade is impossible. Thus, there is a general risk of higher costs due to delayed execution or an adjustment of the spread.

Traders should in any case keep in mind that at least theoretically incalculable risk of loss. It is therefore advisable to choose a CFD broker that waives the margin call in its terms and conditions. In order to limit the risk, a stop should also be set for each position. In this way, each trader can determine his risk individually.