With CFDs, you can speculate on the rising or falling prices of fast-moving financial instruments. These include treasuries, currencies, indices, commodities and shares. It is possible to trade contracts for difference online with a fully regulated cfd broker. On the other hand, if the trader believes that the value of the asset is going to go down, he can place an initial sell position.
To close the position, the trader must buy an offsetting trade. The net difference of the loss is then settled in cash through his account. In CFD trading, you do not buy or sell the underlying asset (e.g. a physical stock, currency pair or commodity).
Instead, you buy or sell a number of units of a particular financial instrument, depending on whether you believe prices will rise or fall. We offer CFDs on a wide range of global markets, covering currency pairs, stock indices, commodities, stocks and Treasuries. An example of one of our most popular stock indices is the UK 100, which aggregates the price movements of all stocks listed on the UK FTSE 100 index. CFD instruments can be shorted at any time with no borrowing costs because the trader does not own the underlying asset.
The first trade creates the open position, which is subsequently closed by a reverse trade with the cfd provider at a different price. CFD trading is a leveraged product, which means that you only need to have a small percentage of the total value of the trade, known as margin, in your account in order to open the trade. Once you have placed your trade and your stops or limits, the profit and loss of your CFD trade will fluctuate with each movement in the market price. A contract for difference (CFD) is an agreement between an investor and a CFD broker to exchange the difference in value of a financial product (securities or derivatives) between the time of the opening and closing of the contract.
CFD trading is defined as "the buying and selling of CFDs", with "CFD" standing for "contract for difference". A hedge fund's prime broker will act as a counterparty to the CFD, and will often hedge its own risk under the CFD (or its net risk under all CFDs held by its clients, long and short) by trading physical shares on the exchange. This is also something that the Australian Stock Exchange, which promotes its CFDs traded on the Australian stock exchange, and some of the cfd providers, which promote direct market access products, have used to support their particular offering. The counter argument is that there are many CFD providers and the industry is very competitive, with over twenty CFD providers in the UK alone.
CFDs are usually traded with cfd brokers, but there are many cases where Forex brokers have started to offer CFD trading as well. For example, if you believe that some ABC Limited shares in your portfolio could suffer a short term fall in value as a result of a disappointing earnings report, you could offset some of the potential loss by shorting the market through a CFD trade. So while you can mimic a traditional trade that profits when a market rises in price, you can also open a CFD position that will profit when the underlying market falls in price. If you choose to hedge your risk in this way, any fall in the value of the ABC Limited shares in your portfolio would be offset by a profit on your short term CFD trade.
To calculate the profit or loss made on a CFD trade, the position size (total number of contracts) is multiplied by the value of each contract (expressed per moving point).