A CFD can be rewarding. You only need a small amount of money, and you could take a much higher position than you can actually afford, because the broker will fill in the difference. If the share does well, you could earn a lot of money. However, if the share falls below a certain percentage, you could lose money. Always keep an eye on your CFD, because if it drops below the percentage you can afford, you will rack up debt with your broker. In a way, a CFD is a loan from a broker. As with any loan, you will have to pay interest. This interest can be a very small amount, but that interest becomes higher the longer you hold onto the CFD. This means CFD brokers earn quite a chunk of money off of long-term CFD’s. It’s not recommended to invest in long-term CFD’s, because of the interest. CFD’s are usually a short-term investment.
Avoiding debt with CFD brokers
When investing in a CFD, it is important to be aware of the leverage mentioned above. If your share ever falls below your initial investment, you will be in debt with your broker. Most brokers work like this, but there is one particular broker that you will never find yourself in debt with (plus500). This broker has a higher initial fee, but at least you will never risk debt with your broker that way. If you frequently invest in CFD’s, this broker might be right for you.