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CFD Trading:
What is it & how does it work?

Want to make the most of rising and falling markets? Then trading CFDs is the ideal solution for you. CFDs, or Contracts for difference are contracts between traders and CFD brokers who agree to exchange the difference in value of an asset before and after the contract.

CFD trading unveiled

A CFD is a sort of financial derivative that enables traders to speculate on the price of various financial asset classes including forex, shares, indices, futures, metals or commodities. 

 

When trading CFDs, traders don’t actually own the underlying instrument but rather only trade price movements, both rising or falling, over a short time period.

Exploring CFDs:
A deep dive into how they work

You can open a CFD position by choosing the number of contracts, also known as trade size, that you want to purchase or sell. With each point the market moves in your favour, your profit will increase accordingly. However, if the market goes against you, you might take a loss. 
In other words, CFDs operate by imitating the underlying market. Therefore, in addition to mimicking a typical trade that generates revenue when a market price increases, you may also establish a CFD position that generates revenue when the underlying market price declines.

Long position
If you believe that the price of an asset will increase, you could open a buy (long) position and generate revenue if your predictions come true.
Short position
You could open a sell (short) position if you believe the price of an asset would decline. Again, if your speculations are correct, you will generate revenue.

A 6-step guide to CFD trading

Understand what CFDs are

Open & fund a CFD trading account

Pick your preferred market

Choose a buy or sell position

Set your stop & limit orders

Monitor your trade & close your position

CFD trading advantages:
What sets it apart?

Leveraged trading
CFDs are leveraged products, meaning that you can get full market exposure for a rather small initial deposit. Therefore, your original investment is just a portion of the position’s total worth.
Hedging opportunities
Hedging gives you the opportunity to partially balance your losses with profits.
Trading flexibility
You can trade CFDs regardless of the direction that the markets are taking since you can go long or short.
Longer trading hours
Some markets allow trading after the typical hours. Just be aware that the market’s opening price and the after-hours prices may differ.