What is CFD Trading
CFD is an acronym for Contract Of Difference.As the term suggests it is a contract between two parties “buyer” and “seller”,
Advantages of CFD Trading.
Trading CFDs enables traders to speculate on future market price changes of a financial asset, without actually owning or holding the underlying asset.
CFDs Trading is available for a range of underlying financial assets and instruments, e.g. Shares, currencies. commodities, indices, ETFs, and bonds, providing a powerful financial instrument to exploit any trading opportunity on thousands of assets.
CFDs are traded on margin which means the trader benefits from a leverage provided by the broker consequently magnifies the profits
You Can limit &manage your risk using Stop Losses and Limit Orders on CFD’s
CFD Trading involves two parts:
First, you open the trade with a CFD broker at a certain price quoted by the broker. This creates an open position which you later closed out with a reverse trade with the CFD broker at the latest price.
If the first trade is a buy for a short or long position, the second trade which closes the open position is a sell when the broker buys back the asset. if the opening trade was a sell or short position, the closing trade would be a buy.
CFD trading reflects the value fluctuation of the underlying asset between the opening price and the later closing price.
Where you buy a long position in the CFD:
If closing price > opening price the CFD broker pays you the difference between the opening and closing prices of the CFD
If closing price < opening price You pay the CFD provider the difference between the opening and closing prices of the CFD
CFD trading involves 3 Simple actions
- Choosing an asset to trade on
In case you want to trade silver If the price of one ounce of silver is €18, one CFD of silver will also be worth €18.
- Choose a lot size By using leverage traders can buy up to 500 times more silver with their funds. For example, with a €200 investment, you can buy $ 100000 worth of silver CFDs, using 200: 1 leverage $ 500 x 200 = €100,000
- Choosing a Position Using CFD traders could profit Even when the markets are bearish. If, for example, in case they predict that silver prices will drop, the open a short position( “Sell” ).
Closing trade and calculating the outcome
If the price of an ounce of silver has dropped to €17.5 and the trader decides to close your ‘sell’ deal. The calculation of the profit:
100000/18*0.5 ~2778 Which means he made a profit of ~€2778 by investing merely €200