A CFD stands for Contracts for difference and is a popular form of derived online trading. It allows trades to trade on the price of fast-moving world-wide financial markets. It also includes instruments such as shares, indices, treasuries and commodities.
An agreement to trade or exchange the difference in the value of an asset between when the contract is opened and closed is a CFD. With CFDs, you don’t really own an asset if the contract is not yet closed but you can still benefit when the market share favours you. However, you can still lose your trade if the market doesn’t move in your favour.
In order to trade CFDs, you are required to deposit a small amount of money which will help you open a position when you are ready to trade. This type of trading is also called ‘trading on margin’. This trade enables enlarge your profit or returns. Your losses will also be changed as they are dependent on the full value of the position. This means you can lose all the money you have deposited.
CFD trading explained
One of the most advantages of a CFD trading is that you can sell anytime if you speculate that the price will decrease or buy if you contemplate prices will increase.
How does CFD trading work?
CFD trading is very easy and straight forward. According to our research, with CDF trading, you won’t be able to sell or buy commodities, currency pair or a physical share. However, you only buy or sell a portion of units for a certain utensil.
But of course, depending on how you predict the price share in the market. Our forex trading partners offer a wide range of currency pairs, stock indices, treasuries, commodities and shares.
When the price of the instrument you are trading for shifts to your goodwill, you gain lots of CFD units that you have sold or purchased. However, it moves against you, you will lose. Losses can also go beyond the amount you have deposited into your online trading account.
What is margin and leverage?
Margins allow traders to enlarge your returns. As explained above, it is based on the complete value of the CDFs point. But you can also lose you capital when the shift is against you. Leverage is different from margin because trading on leverage means depositing a small percentage of the full value of the product for you to be able to open a position and start trading.
What are the costs of CFD trading?
There are a few CFD trading terms that you need to familiarise yourself with in order to get started with online trading. We have Spread, Holding costs and Market data fees.
- Spread – the difference between the sell and buy price is called the Spread. You pay spread when you trade CFDs. You might ask yourself how it works. Well it is easy. You use the purchase price quoted to buy a trade and click the sell piece when you exit the position. If the spread is narrow, it means the price will shift to your advantage before you begin making a profit. If the price doesn’t move in your favour, you lose.
- Holding costs – any positions open in your account at the end of each trading day may be subject to a charge. This charge is called ‘holding costs’. Depending on the point of your position, this can either be negative or positive.
- Market data fees – you must trigger the relevant market data subscription if you want to view data or trade. A certain fee is charged by the trading broker
- Commission – this refers to paying a separate commission charge when you are trading share CFDs but it is applicable only for shares.
How do I trade CFDs?
If you think the asset price will increase, you buy a CFD, but if you think the price will fall, you sell the CFD because you will lose.
Where Can I trade?
You can use any recommended platform by our experts. All the platforms are compatible with PCs, tablets and Smartphone. Simply log into your account and go to ‘Market Explorer’ or ‘Market Watch’ to see all available markets on your CFD trading platform.
Which CFDs do brokers offer?
Most traders or brokers offer a selection of commodities, indices, energies and currencies. You can also trade instruments form energy sectors such as copper, and metals. Also in the agriculture too, you can trade CFDs.
Why must I trade CFDs?
CFDs give traders a wide range of tradable products. You will be able to trade anything from the energy sector, global currencies or agriculture sector.
Expiry dates for trades
Expiry date depends on what you are trading. All have an expire date and you will be able to close your position until the expiry date. Don’t forget to click on the specific product on your trading platform to see when it will expire.
What are the costs of trading?
As mentioned above, the spread, commission, market data fees and holding costs are the costs of trading. Some brokers don’t charge any credit or debit card fees or commissions.