CFD trading
CFD trading is the activity of trading contracts for differences with a broker. CFD (Contract for difference) is a derivative product, where you can trade on the difference between the starting value of a certain set of assets and its closing value. By using a contract for difference, which is basically just a contract between a buyer and a seller that specifies a certain purchase price and allows for profit or loss based on changes in the price of the underlying asset over a specified period of time, a trader can participate in the financial market with a smaller initial investment.
Since its introduction in the early 1990s, CFDs have become increasingly popular as investors appreciate their lower capital requirements. It allows investors to participate in markets that they may not have had access to before due to large margin requirements or regulatory issues. CFD trading gives traders the ability to go long or short on an asset, and in the UK, traders can avoid stamp duty as CFDs are derivative products.
When trading CFDs, you predict the movement of your chosen asset in the market. As you would in traditional trading, you Buy when your prediction is bullish, and Sell when your prediction is bearish. This does not mean that you buy or sell the asset, because when investing in CFDs, you are investing in your right to gain from the movement of the asset, not the asset itself. However, it is important to remember that you can lose your investment if the asset price moves in the opposite direction of your prediction.
As an example:
You’ve read a report on Apple that suggests the stock will plummet in the next few days. You then enter our trading platform and observe its actions on our live, real-time graphs and decide you agree.
Will you Buy? Or Sell?
To Buy means the stock has to rise higher than the Buy price.
To Sell means the stock has to fall below the Sell price.
Did your asset increase by 2 pips above the predetermined criteria, or 1? If you foresee sudden changes in asset movements during the trading time frame then trading CFDs may be your better option. However, there are risks involved, and potential losses should also be examined.