What is a Contract for Difference (CFD)?

CFD Trading

If you are new in the online trading market and interested in CFD, you might have come across different articles about CFD. In this article, you will get to know brief but complete basics about CFD trading.

CFDs Explained  

CFD is a tool for trading which stands for contracts for difference. A trader earns money using CFD when the price of the asset fluctuates. The profit is the difference between the opening and closing amount of the asset. However, the trader doesn’t need to own an asset actually for trading and this is the turning point of this tool. 

For this type of trading, traders can use the leveraging mechanism. The traders can trade with more money than they actually deposit. So, if the trading is successful, the traders will get the highest profit. In the same way, for unsuccessful trading, there is a considerable risk of losing money. You can learn more about making maximum profit from the CFD trading from the website of TradingGator.  

Advantages of trading CFDs

There are many advantages of CFD trading. Few of them are highlighted below-

1) Higher Leverage

One of the primary reasons why people go for CFD trading is the high leverage opportunity. CFD traders offer higher leverage options than traditional trading. However, this has both positive and negative effects on trading. Now CFD market is highly regulated, and the traders can get the leverage from a 2% to 50% rate. With the lower margin, one can get the highest possible return. But the increased leverage may also lead to a more significant loss. So, the traders need to be careful while taking the leveraging option. 

2) Access to the global market

The traders can access to the worldwide market through this platform. CFD brokers offer many international products on the leading trading market all around the world. 

3) Shorting is allowed

Where many markets have rules for stopping shorting, CFD instruments can be shorted easily as the traders don’t need to own the assets. 

4) Various trading opportunities

One can get a variety of trading opportunities with CFDs. One can trade with stock, index, currency, commodity, and other commodities with the CFD trading option. 

So, these are some significant benefits of CFD trading. You will be more clear about CFD trading, reading the following example. 

Example of CFD trading

Suppose you want to trade CFD, going to an extended position. While opening a position, you will need to choose the trading option, either buy or sell. The profit or loss will move with the price movement of your products in the market. 

For example, you want to buy share of the “X” company and estimate its value would be increasing. So, to make a profit from this price appreciation, you want to open a long position. You purchase 100 shares with a value of $150 each. So, the total amount of your trading would be $15000. If the price appreciates to $160, you can make $10 profit from each share. And the profit amount would be $1000. 

As you have got a basic idea about CFD trading, you can now start trading in the market and make maximum profit from it.