CFD Trading Explained
What is CFD Trading?
A Contract for Difference or more popularly called as CFD, is a deal between 2 parties to swap the difference between a contract’s closing and opening price.
CFDs are derivatives products that permit you to do place trades on live market price movements without having the need to own the actual instrument on which your agreement is structured.
You may utilise CFDs to predict market prices’ future movement irrespective of whether the actual markets are either falling or rising. You may short sell, which allows you to make some money from prices that are falling or hedge your portfolio to balance out any probable loss in value of the investments you have made. Furthermore, you may acquire exposure to other markets which you haven’t tried accessing before because there are as much as 10,000 markets to place trades on. We provide prices on commodities, currencies, indices, shares and a lot more.
CFDs are also products that are leveraged. This enables you to place trade with only a small percent of the contract’s total value. This simple indicates that you may make your return on investment a lot bigger. However, you should keep in mind that higher leverages can lead to losses that may be greater than the first deposit you have made.
Ability to Go Long or Short
CFD trading allows you to go short (sell) if you think the market prices will decrease or go long (buy) if you think market prices will increase. So, should you predict that a certain market or company will be experiencing a value loss in the short term, then you may use CFDs to sell it right away and your earnings will increase together with the decrease of the price. On the other hand, if the market starts moving against you, then you will also lose a lot of money. CFDs are really a very versatile option when it comes to trading the market prices’ movements as they allow you to gain money with every move.
Hedge your Portfolio
You may utilise CFDs to balance an existing portfolio’s value. If you think your current portfolio has lost its value, you may try to offset by short selling. For instance, you hold Vodafone shares amounting to £5,000. You may short sell £5,000 worth of your shares in Vodafone by using a CFD trade. In case your Vodafone share price decreases by 5 percent, your loss will be balanced by a profit in your short cell CFD trade.