What are Contracts for Difference (CFDs)
CFD is a tool that allows traders to leverage on the spot fx market, and carry out transactions on a perspective index and the commodities without actually buying the underlying securities.
CFD in essence is a financial derivative product. Both parties (Brokers and customers) At the time of a contract expires in order to spread CFD trading products covered by the opening and closing prices between transactions.
CFD trading allows you to profit from shares/equity(such as dividends, cost, etc.), but you do not actually hold the stock. CFD trading is OTC based, it is not traded within a financial exchange.
For those interested in short-term technical trading and hedging positions in the spot forex market, CFD trading is an ideal tool, but at the same time it also attracts long-term investors.
How does the CFD market work?
CFD is an open ended contract. If You have not closed your positions at the closing time of the transaction date, the positions will be carried on to the next trading day. At this point, the interest payments or interest acquired is obtained. (depending on whether you hold more than one order or an empty list). As long as you maintain a stable enough usable margin, you can indefinitely hold your opening.
Margin and the CFD Market
CFD’s are currently a very popular margin product.
You only need a small portion of the total amount of transactions made transactions (CFD single stock is 20%, index and exchange-traded funds (ETFs) to 7.5%), compared with the actual stock being traded in the market, which enables you to carry on greater potential investment. Thus, for example, CFD trading up to $ 10,000 of equity actually only requires you to be trading just $ 2,000. If this transaction produced a $ 500 profit, for the actual stock exchange this is only 5% return, when compared with rates of return of up to 25% CFD trading.
Because CFD allows you to commit trades without the requirement of full funding, you need to pay the cost of credit for the long positions, or for short positions you will collect interest.