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  • CFDs

    Contract for Difference

CONTRACT FOR DIFFERENCE

CFDs Trading

CFDs (Contract for Difference) is primarily a tool that allows you to profit (hence the term "derivatives") from changes in the price of an underlying asset, no matter whether the price rises or falls. The underlying asset in question may be shares, bonds, futures, currencies, commodities, etc. Essentially, CFDs is a kind of copy, or "clone" of the underlying asset. It is an agreement between two parties to exchange the difference between the sell and buy price of a contract, multiplied by the quantity of units of the underlying asset as stipulated in the contract. This instrument is a product of the "Over-the-Counter" (OTC) market

Who should be interested

Why did CFDs contracts emerge if it is possible to trade in the underlying asset directly? The main objective and advantage of CFDs is that it provides traders with the opportunity to derive profit from changes in the price of an underlying asset while not directly that asset. It does this by lifting some of the regulatory restrictions (mainly stemming from the amount of deposits required) on directly operating in the underlying market. Hence, with CFDs dealing, a trader is able to obtain the same financial result they would as if dealing on the underlying market directly. Hence for beginner traders CFDs is a crucial tool that will allow them to start electronic trading in underlying assets with a relatively low deposit at a correspondingly low risk, yet still with real money.

What are the advantages

CFDs allow a trader to take long or short positions on an asset and also the underlying contract. The relative ease with which it is possible to take long or short positions broadens significantly the investment capabilities of a trader, who can now derive profit from both a price rise and fall. For example, to open a position per a futures gold contract on the New York Stock Exchange, it is necessary to have at least 5,000 US dollars (the so-called ). What should a trader do who analyzes the market and would like to capitalize on his knowledge, but does not have the available funds to do so (i.e. wants to start trading in gold)? It is exactly this trader for whom CFDs trading will prove useful because trading CFDs is based on margin..