A recent press release outlined how Denmark’s government has released a report that shows how many citizens have invested in CFDs. The report also showed an increase of approximately 12,000 citizens investing in these instruments during the first half of the year alone.
It makes Denmark one of Europe’s most exciting countries for trading CFDs.
However, because these are complex financial instruments, it is essential to understand them before investing your money into them.
What is a CFD?
A Contract For Difference, or CFD as they are often called, is an agreement between two parties on the movement of the price of certain assets over a set period. Therefore, if the value goes up by the end of this period, then one party benefits at the expense of the other.
The party that wins receives the difference between the starting and ending prices, plus a fee called ‘the spread’. It’s known as being ‘in profit’; however, if you are on the losing side, you will have to pay this fee.
Unlike an option, where you have to purchase them before they expire, CFDs allow for traders to speculate on any movement in price, rather than just directional movements. It makes it possible for traders to take long-term positions with much smaller capital investments.
The types of CFDs available
There is a wide range of financial instruments offered as CFDs through online trading platforms; however, the most popular are forex, commodities, indices and shares. It means that you can use your CFD investment to trade almost anything ranging from oil to Apple share prices.
It makes them very versatile for any investor. It’s also what makes them particularly attractive. They give investors flexibility in choosing how much risk they want to take on – depending on their level of expertise and appetite for risk.
Do I need to be an expert in investing?
Because CFDs allow you traders limited losses but total gains, it should mean that beginners should prosper with limited knowledge and skill. One of the most appealing aspects about them is that you won’t need to have any prior knowledge or experience before beginning trading.
It may sound too good to be accurate. Still, the simple layout of these instruments makes it an ideal place for newcomers to start learning how to trade. So many banks offer training tutorials and online resources that will allow you to understand their potential pitfalls better.
The Danish regulations on CFDs
One thing that always needs to be considered with financial trading is if any regulations surround them. For example, last year, both Italy and France banned certain types of CFD investments because they felt too high-risk for inexperienced traders due to their leverage options. However, Denmark has decided not to follow this path and instead has chosen to embrace CFDs, even encouraging them.
Another issue is that most Danish banks refuse to open trading accounts for their customers if they work with foreign brokers (even if the said broker has a physical presence in Denmark). Again, this is another reason why traders might struggle to find a suitable brokerage firm in Denmark and will need to opt for an international broker outside of the country where they live/reside.
Credit card chargebacks
There are also other limitations imposed on Danes, which are usually not an issue if you live elsewhere. One major problem is the standard industry practice of credit card chargebacks which allows customers to cancel payments within 14 days. Under Danish law, once the trader receives the payment, it cannot be reversed under any circumstances.
It means that brokers in Denmark will not accept credit card transactions due to this risk and instead require bank transfers or other payment methods that cannot be reversed.
Whether you choose to invest through a Danish bank or forex trading platform, one thing is for sure: Denmark’s government sees potential in these instruments, and they would like more of their citizens investing in them. It alone should be enough to convince anyone that they could offer some great returns on your capital – so why not try them out today?
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