CFD trading is becoming increasingly popular every day. But how exactly does it work and what are the advantages and disadvantages? Let’s answer the most important the questions related to trading CFDs in this brief CFD trading guide.
Guide on CFD trading
CFD (contract for difference) is calculated by deducting the difference between the cost of the asset in the implementation of the transaction and its cost under the contract. The trader does not own the asset itself. Instead, CFD reflects the price movement of the asset. Depending on the position occupied, the trader will make a profit when the asset’s cost moves up or will lose if the cost falls during the term of the contract. CFDs are always recorded as cash, not tangible assets.
CFD trading requires a seller and a buyer. The agreement provides that the seller pays the difference indicated under the contract if the cost of the asset goes up. But, if the cost falls, the broker will pay the difference. Being one of the most common ways to trade financial tools, CFDs provide a number of advantages.
Assume you want to trade stocks with a price of $32.44 and decide to buy 100 shares. The total amount of necessary investments will be 3,244 dollars. If you trade through a regular broker giving you a margin of 50%, you’re expected to invest $ 1,622. However, CFD online brokers give margins that are low and can be as little as 5%, meaning that you will need to invest $162.20 for this trade. You can learn more about this from this Avatrade customer review.