What Is A CFD
What Is A CFD ?
So, what is a cfd? A CFD, or Contract For Difference, is a leveraged product, which enables traders to trade on live market prices without owning the underlying value of the instrument. A CFD is an agreement to exchange the difference between the opening and closing price of a contract.
CFDs are traded on over 10,000 markets, including global stocks, shares, currencies, indices and commodities. Standard CFDs are available on a range of markets including equities and non-equities. Futures CFDs are available on non-equity markets only.
A trader has the option to go long (buy) if he believes the value of an underlying instrument will increase, or to go short (sell) if he believes the value will increase. To protect assets, traders can also hedge their portfolios in volatile markets.
CFDs have no fixed contract size or expiry date. Positions may be renewed at the end of the trading day and rolled forward, as long as there is a sufficient margin. If a trade remains open overnight, a trader’s account will be debited or credited to reflect the daily adjustments of dividends or financing costs.
Trades are carried out on a leveraged basis. Hence, a trader only deposits a percentage of the trade’s total value. This is known as the margin. No actual physical shares are bought or sold. This means that potential profits and losses may be magnified.
CFDs are usually traded in their cash value and reflect the movements and pricing of the underlying stock on which they are based. A position can be closed at any time during normal trading hours. Commission is paid when you open a trade and when you close a trade. Traders must be aware that brokers will each have their own terms and conditions.
Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.