CFD Trading

What is it And How Doest it Work?

CFD or the contract for difference, is a contract between a buyer and a broker or other selling institution to exchange the difference between the purchase price on the contract and the price at which it is sold. Buying or selling a CFD serves as a proxy for buying or selling an underlying asset, without the need to actually exchange the asset.

This is how it works, if the periodic closing price of the underlying instrument rises, the buyer profits; and if it falls, the seller profits.

Advantages of CFDs

CFD trading is a popular alternative to traditional investing because of its ability to maximize capital investments and, in turn, increase your potential profits or losses. This approach to forex trading has grown in popularity over the past decade, especially with some brokerage firms offering negative balance protection to limit heavy losses that would put your trading account into debt.

Key Benefits:

*Greater leverage in trade

*Earnings Potential in Both Bear and Bull Markets

*Flexible lot sizes

*Lower trading costs

*Broder hedging options

*No expiration dates

Go Long or go Short

CFDs can involve long or short trades. In a long CFD trade, a trader enters a contract to buy with the hope that the price of the underlying asset will rise. In a short CFD trade, a trader enters a contract to sell with the hope that the price of the underlying asset will fall.

The flexibility to take long or short positions in the market is especially useful for short-term traders. Traditional “buy-and-hold” investing strategies are designed for longer time frames, ranging from months to years. Being able to quickly become net-long or net-short a given asset class is useful for capitalizing upon periodic swings in pricing. If a market unexpectedly rallies or crashes, one can trade CFDs and get in on the action.

Trade in a Wide Variety of Markets.

CFDs can be used to trade over 10,000 different assets, including stocks, indices, commodities, forex, cryptocurrencies, options, and more. Furthermore, you do not need to use multiple platforms to trade different markets. Everything is accessible through a single login, wherever you need it – you can trade using your web browser, phone, or tablet.

Hedging Your Investment Portfolio

Thanks to the limited capital commitment needed to open a position, traders have access to funds that can be used to implement hedged positions and limit their risk at any given time.

This is a useful strategy when you’ve taken a risky position on a CFD, or when a long-term position is accruing losses. Instead of selling at a loss and draining your account’s funds, you can open additional positions in hopes of generating earnings that balance out your initial position. When used correctly, a hedging strategy can balance some of the risks that come with CFD trades.