What is a CFD?
CFD means Contract For Difference which is a financial instrument that allows you to trade and try to benefit from the movement in price of commodities (e.g. Gold, silver & oil), indices, stocks (e.g. Facebook, Barclays, Vodafone, Tesla), fx currencies, cryptocurrencies (e.g. Bitcoin, Ripple, Ethereum), ETFs, options, bonds and more. The introduction of CFDs made it possible for online traders to have access to a wide range of markets that were not previously available to them.
When trading CFDs, you do not actually purchase or own the underlying asset, you are speculating on the price movement, up or down. A CFD is a contract to between two parties to pay the difference between the value of the current price and future price
CFD is similar to forex trading in many aspects and are traded through an online brokers trading platform. You simply select the trading instrument that you wish to trade and place your orders. If you believe an instrument will increase in price, you would look to enter a buy (long) position. If you thought the instrument would decline in value then you would look to enter a sell (short) position. The profit or loss is realised depending on the difference between the entry and exit prices when you close the trade. CFDs can be bought or sold at any time that you deem suitable as they do not have an expiry date.
CFDs have become very popular in recent years, especially for day traders. The high leverage and low costs associated with trading CFDs online make them an attractive proposition to retail and institutional traders.