CFDs can be used with low and in some cases no leverage. Read more.
The short answer to this is yes, you can trade CFDs (Contracts for Difference) without leverage, with some brokers. In fact, if you are beginning or starting out as a CFD trader or speculator, or trying a new trading platform (see my list here of best CFD trading platforms) then trading CFDs with low or no leverage could be a good idea as you learn the markets and systems.
Reducing or removing the leverage on trades can reduce the risk associated with any position. Of course, this by no means determines if you will profit or lose in a trade. Leverage magnifies and speeds up the rate at which your position changes, and can be dangerous in the hands of a novice trader. It’s the ultimate financial double edged sword; your gains will be multiplied if the market moves in your favour, and likewise if the market on the underlying asset moves against you then your losses will be magnified.
Not all CFD providers offer the option of trading CFDs (Contracts for Difference) without leverage. It could be argued that one of the major attractions of CFDs is the leverage they can give you on the price difference of the underlying asset. For example, holding an un-leveraged position on an asset such as a share price is not particularly different to holding the share itself – and in fact you miss out on some of the benefits such as dividends, the advantage of being able to see market depth through the transparency of an exchange traded market and a reduction in counter-party risk.
As mentioned earlier, trading CFDs with low or no leverage does reduce the risk and magnification that leverage can raise. If you are trading on an underlying asset that is particularly volatile this can be advantageous; the price movements in a volatile asset can produce enough gains (and conversely losses) to make your trade worthwhile.
In conclusion, keeping your leverage low can be beneficial for a new trader, if you are trading in particularly volatile assets, or if you are learning a new trading system. Trading CFD without leverage is an unusual trading tactic and really just mirrors the underlying asset that the CFD is trading on. Leverage is a tool that needs to be well understood before venturing into the world of high-risk trading, hence reducing your leverage in your early trading forays is worth your consideration.
