What is CFD trading
What is CFD trading?
CFD is an abbreviation from the financial world. It stands for “Contract for Difference”, in German a difference contract. This sounds complicated at first, but on closer inspection it is relatively simple to understand. A CFD makes the participation possible of an investor in a course change of an asset, without acquiring these directly.
For example, if the price of gold rises, an investor participates in this price increase via a CFD without actually having to buy gold in return. If speculation is made on the price of shares, then such a contract constitutes an equity derivative. Investors and traders can speculate on stock prices without transferring ownership of the underlying shares. So even with small stakes high returns are possible. Thus CFDs are also for private investors an interesting investment possibility.
CFD trading is currently available in a number of countries including the UK, Netherlands, Poland, Portugal, Germany, Switzerland, Italy, Singapore, South Africa, Australia, Canada, New Zealand, Sweden, Norway, France, Ireland, Japan and Spain. Due to restrictions by the “Securities and Exchange Commission” (SEC) CFDs can not be used in the USA.
The trading platform Plus500 offers attractive opportunities for newcomers in the field of CFD trading. There is an interesting new customer bonus and first strategies for beginners are presented. Thus each prospective customer can argue once with the possibilities in addition, risks of the CFDs. Because with all yield chance one should not disregard also the risks. As always, the old stock market adage that you should only invest in investment products that you really understand also applies to CFDs. Otherwise, an imprudent investment may lead to the loss of the entire capital invested.
Small stakes can bring high returns
Rules of CFDs
CFDs were originally developed in London in the early 1990s as a form of equity swap. CFDs are mostly traded between individual traders and CFD providers. There are no standard contract terms for CFDs, so each CFD provider can offer their own CFDs. There is also usually no expiration date. Once a position is closed, the difference between the opening of the trade and the closing trade is interpreted as a profit or loss.
The CFD provider is entitled to impose a number of fees. These can include bid-ask spreads, commission, overnight financing and additional account maintenance fees.
Even if the CFDs do not expire, all positions left open overnight can start to fluctuate. This usually means that any profit or loss is realized and credited to the account. Also, this can be debited to a client account and charged with the associated finance charges.
CFDs are usually traded on “margin. The trader must meet the minimum margin level at all times when trading CFDs. Typically in CFD trading, both the profit and loss, as well as the margin requirement, are constantly calculated in real time and displayed to traders on a screen. If the amount of money deposited falls below the minimum margin level, margin calls can occur.
Who has not understood this enumeration of some rules at the first go, should necessarily deal more closely with the CFDs, before he makes an investment in such contracts for difference, otherwise capital losses could set up very quickly.
For investors who are well informed and know what they are doing, CFDs are an attractive form of investment with which very high returns are possible with small stakes.