What is CFD Trading?

WHAT IS CFD TRADING | INTRODUCTION

CFD or Contract for difference is a financial tool that was created in early 1990s for hedging purposes. They were initially used to offset risk of loss from stocks. Since they required a small margin, no physical ownership and were tax free, CFDs where seen as a favourable financial tool. In late 1990s, with the rise of online trading in general, brokers soon embraced them as an important new financial tool. By doing so, traders were able to trade stocks, commodities and indices they did not have access before only with the click of a mouse. New markets were soon introduced to retail traders from all around the world and with simplicity and accessibility being one of their most important advantages, CFDs fastly became very popular amongst online traders! Today their part in online trading industry has became quite admirable and many experts consider CFDs to become number one online trading instrument in near future.

WHAT IS CFD TRADING | BASICS

In its basic form, a CFD is a contract (agreement) between a buyer (client) and a seller (broker) to exchange (pay) the difference between it’s opening (current) price and it closing price (at the end of the contract time). Being a financial derivatives, CFDs mirrors the movements of an underlying asset allowing you to trade without physically owning the asset. By doing so, you dont have to pay any costs of physical ownership such as account management fees and stamp duty.

Unlike stocks and other similar instruments where you can either benefit if the price rises or lose if the price falls with CFDs you trade and speculate on the price movements whether prices are rising or falling. If you believe that a company or market will experience a loss of value you can use CFDs to sell it today, and your profits will rise in line with any fall in price. In CFDs this is called ”going short”. On other hand, if you believe that a company or market will experience a rise of value you use CFDs to buy  or ”going long” and your profits will rise in line with any rise in price.  ”Going short” or selling can also be used to hedge your portolio to offset any potential loss in value of your physical investments therefore CFDs are often used as ”hedging” tool by investors as an insurance.

WHAT IS CFD TRADING | ADVANTAGES

Chief advantages that put CFDs on top in online trading industry are definitely CFD Margin and CFD Leverage. They work together and make CFDs stand out in a crowd. CFD Margin is a minimal amount of money you need to deposit in order to open a position and start trading. It often varies between only 2% to 20% of an asset they mirror, giving you the opportunity to gain same amount of market exposure by depositing just a small fraction of the total value of your trade. This means you are able to Leverage your investment by opening positions of larger size than the funds you have to place as  margin collateral therefore magnifying your gains.  Being a leveraged product, CFDs also magnify your losses in same way as your gains! . However, if you choose your CFD Trading Strategy wisely and follow few simple CFD Strategy Tips your loses will never overcome your gains and you will always keep things under your control where they belong.

WHAT IS CFD TRADING | CFD MARKET

CFD Market also offers you global trading opportunities.  CFD Types such as Share CFDs, Commodity CFDs, Index CFDs, Forex CFDs and many more give you the versatility and range of choices that one could easily ask himself if you really need anything else in your trading career??? Their general difference is in the type of financial asset they mirror you just need to find one that suits you best!

WHAT IS CFD TRADING | VERDICT

Finally, CFD Trading is everything that you need if you want to use your skills and knowledge somewhere where they will matter the most! Being so, most important step in your successful trading career is choosing your CFD Broker. As Cfdtradingreview.com chooses only the Best CFD Brokers for you, your only job is to pick the one the suits you best and start exploring the world of CFDs now!