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What is Contract for Difference (CFD)?

2018-10-25 10:00:00

What is Contract for Difference (CFD)?

The Contract for difference is a financial product derived from stocks and containing high leverage and is an efficient way to buy and sell stocks, indices, futures, and other commodities. 


The Contract for difference (CFD) can reflect changes in the price of a stock or index and provide a profit or loss from a price change. CFDs are traded on margin. Same as physical transactions, earnings or losses are determined by your buying and selling prices. CFDs have many advantages over traditional stock trading.


What kind of wealth opportunities can a CFD offer?

1.Trading Advantages

① A CFD uses margin for trading. For example, the broker provides a client with a 1% margin, which means that the customer can conduct a 10,000$ transaction paying only $100. In this way, investors' capital utilization efficiency will be higher, because only a small proportion of the total order amount will be needed to invest for conducting a transaction while investors enjoying the full benefits and risks brought by market fluctuations.

② You can make buy and sell bidirectional operations, selling CFDs is the same way as buying. In this way, CFD investors have the opportunity to make a profit in the bear market and the bull market (short-term intraday market fluctuation), and can also avoid the risk of long positions in the market.


2. Spread

All the goods will have a certain spread after an order is placed: the spread is the difference which will be higher than the immediate price when the order is in long position. On the contrary, when the order is in the short position, will be the difference which will be lower than the immediate price. For example, If the current bid price for the EUR/USD currency pair is 1.5760 and the current offer price is 1.5763, this means that currently you can sell the EUR/USD at 1.5760 and buy at 1.5763. The difference between those prices (3 pips) is the spread. The so-called spread is also a kind of broker's disguised fee. (However, our platform provides 0 spread service to enable users to earn more profit)


3.Trading risks

Knowing how to control the risk of trading CFDs is crucial. Margin trading involves high leverage and high risk, and a slight mistake will conduct a margin call and may not be suitable for all investors. Before trading the products offered by CFDs, you should carefully consider your investment objectives, financial situation, demands and trading experience.


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