Guide to Trading in CFD (Contract For Difference)



Trading CFD  

Hidden costs, tips and more

Trading in CFDs (Contract for Difference) is just an informal contract between a buyer and a broker, where a legal agreement is drawn up to swap the ownership of an asset to the buyer – now the buyer has the same economic interest as the broker.You need to understand that a CFD is not a tradable instrument but a contract. The contract states that the buyer and the broker will exchange the value of this financial instrument – the difference between the buying price and the selling price. So, a CFD can be considered a derivative that is based on an underlying cash instrument. These financial instruments give you exposure to price movements without actually owning the asset that they are based on. CFDs are readily available in Europe, Australia, Japan and other countries but not in the United States.

Trading CFDs

script async src="//">

Buying CFDs is not like buying stocks, and this difference you must bear it in mind all the time.The main difference being that a CFD is a contract with a third party, and when you buy stock you are buying something tradable. You will not be charged any levy when you buy a CFD because you are not buying a stock or any other financial asset directly from any stock exchange, because a CFD client only deals with a broker. He buys stock from a broker after lodging margin collateral, and he sells the contract when needed but only with the broker. A CFD can be traded on margin – with borrowed money -, but you cannot do that with a stock.

CFD Trading

Margins and profits

Margins are just the outlay you need to hold or sell positions when dealing with CFDs, and they can be compared to a deposit that you put down when you purchase a home. You need to pay an initial margin when opening and holding a position in a CFD, which can be considered as a security to hold that position. Forex, commodity, index and sector CFDs require very low initial margins – most of them have an a initial margin of 0.5%.

Trading CFDs is not rocket science, all you need is some high quality advice, money and an account to start trading with these international financial instruments.


Share Your Thoughts!

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>