A Contract for Difference (CFD) is a structured financial derivative which replicates the price action and movement of an underlying security or investment product.
The concept of a CFD is that it mirrors the underlying asset in terms of price movement but does not transfer the ownership of the asset. The flexibility of trading CFDs means that when you enter into a buy or sell contract, all you are concerned with is the price movement and size of your trade. The ability to trade only price movement removes the stress of taking physical delivery of a product which can happen if you buy and sell exchange traded futures contracts.
CFDs allow you to trade using margin which means you can trade larger volumes with less upfront cost.
This gives the short and long term investor the ability to execute their investment strategies quickly and efficiently. Whether you are looking to hedge your current investment portfolio or looking for the ability to trade short term strategies, CFDs provide any investor with easy access to the global financial markets.
LET'S TAKE A LOOK AT THIS EXAMPLE OF TRADING WITH CFDS
10 CFDs @ 86.90 (predicting a bearish market, meaning you expect prices to fall)
The price does fall and to close the position you then buy
10 CFDs @86.84
Therefore your P/L would be…
P/L = (8690-8684) x 10
= 6 x 10
Learn more about the markets and CFDs at our One Trading Academy or try setting up a position on a Demo Account today.
Contracts for Difference (CFDs) and margined FX are leveraged products which carry a high degree of risk to your capital. Prices may move rapidly against you and may result in you losing more than your initial deposit. CFDs and FX may not be suitable for all investors and you should fully understand the risks involved before opening an account.