Financial markets offer various ways to invest. Among the most recent to have been established and achieving sufficient trading liquidity are Contracts for Difference (CFD). In the 15 years since their introduction, CFD trading has matured into a robust liquid environment answering the requirements of a range of participants: traders, hedgers, and even other market principals. Likened to "spread betting", the concept while conceptually simple, required advances in computer systems, programming, platforms, and cloud data storage for CFD trading to become viable and competitive.
What Is CFD Trading All About?
A Contract For Difference is a term that practically self-explanatory. When you initiate a CFD, you are betting that the value of a specific financial asset will go up or down. If you believe that the price of this specific financial instrument will go up, you are the buyer in the contract. If you believe that the price will go down, you are the seller.
If it happens that the market moves in your favor, the party you signed the contract with will pay you the price difference (minus the bid-ask price spread). Conversely, if the market moves against your positions, you will have to pay the difference to the other party in the contract. CFD platforms are also notably able to deliver trades at the quoted prices, even during fast moving markets.
Additionally, CFD trading occurs without brokerage commissions (though imposing overnight fees for each 24-hours that a position is held), further adding to this market's competitive advantage.
What Can Be Traded With CFDs?
Given the virtual nature of the market, CFD trading has arisen on a variety of financial instruments. Reflecting the underlying markets, the largest volume is in forex. Depending on your platform/provider, CFDs in stock indexes, shares and commodities are also available.. Clearly your trading choices and strategies should be based on those markets with which you are most familiar and whose prices you have the best chance of forecasting
In Conclusion
As discussed, CFD trading is a useful way to trade in financial markets. The market makers offer a variety of systems and opportunities. Participants in other financial markets will find here ways to both offset risk and initiate positions for their benefit.
