I am certain that most traders will agree if I say that trading CFDs is commonly known as a type of venture for short term positions rather than short term positions. That is right, if we go through some online resources, we could see tons of materials telling us that CFDs are great for fast market transactions and only few resources tell us the possibility of using CFDs for long term trading. Going back to the flexible characteristics of the said financial instrument, we could see that CFDs have the ability to be traded for both long and short positions. Now, here’s a big question: If CFDs can be traded for both long and short-term, why are there only few experts who encourage long-term CFD positions? I have made a run-through on some reading materials and here are some ideas that I got from today’s question.
Long term trading
The term itself brings an argument between buy and hold traders and day traders because they define this term in different ways. In the eyes of a buy and hold trader, long term trading would mean holding an asset for the longest possible time. In short it can range from at least 7 to 10 years or even longer. For a day trader, extended or long term trading means that you have to keep the asset longer than the usual trading day. Thus, a day trader will consider an overnight position as a long term trade.
The advantage of Long term CFD trading
Because of the ability of CFDs to be transacted in various markets, a lot of traders consider trading CFDs as a short-term trade and only a few people engage themselves into long-term or extended positions with such financial instruments. This is because of the risks that are associated once kept for a long period of time. Ironically, I found an article from an experienced trader who believed that CFDs, despite their cost when held long term, can be advantageous if used in a portfolio with overall low volatility and accompanied with components that are significantly leveraged and/or volatile. According to this trader, holding CFDs for a longer period of time also brought him unrealized capital gains. When we say unrealized gain, we should understand that these gains are nontaxable.
The disadvantage of Long Term CFD trading
I am certain that a seasoned trader has definitely raised a thumbs down over the previous segment of the post, so to keep it balanced, let us also consider the reason why traders say no to long term CFD trading. The main reason why most traders do not wish to be involved in long term CFD trading brought overnight payments.It is pretty obvious that traders wouldn’t want to pay brokers for holding an account for so many nights because of overnight charges that will be dedicated to your account for each night a position is held.
By looking at both sides of the coin, CFDs are instruments that are commonly traded for short term positions but one cannot deny the fact that it is also a possible instrument for long term trading. As a trader, you have to remember that the possibility of engaging yourself into long term CFD trading requires a huge amount of bravery, trust in your instincts and powerful researching abilities so as to succeed in this less chosen field.