CFD Trading: What are CFDs and How to Trade them?

What is CFD Trading？

CFD Trading is a financial derivative through which traders can speculate on short-term price movements in the financial markets including forex, shares, commodities, and indices without having to buy any underlying assets. Contracts for the difference is a form of derivative trading, which means they derive their value from the market performance of the asset.

The value of a CFD contract does not reflect the value of the asset, only the price change between the trade entry and exit points.

How CFD Trading Works？

Profits and losses in CDF trading are determined by the price difference between the opening and closing prices of the contract. If you think the price of an asset will rise, you would open a long (buy) position and profit as the asset price rises as expected. But if you think the price will fall then you would open a short (sell) position and profit if it falls. Both profits and losses will be realized once the position is closed.

As you speculate on price movements, your trading will be profitable if you predict correctly. If not, you will lose. In case of profit, the broker or “seller” will pay the trader the contract difference. While in case of loss, the trader or the “buyer” will pay the broker the difference.

Advantages of Trading CFDs

• Global Market Access: Most CFD brokers enable around-the-clock access to the worlds major markets. CFD traders can trade a variety of products in the global markets.

• Going Long and Short: CFD trading allows traders to go both long and short on traded instruments, taking advantage of every market movement.

• Higher Leverage: CFDs are leveraged, which means that you only have to deposit a small percentage of the total trade value to open a position. For example, trading with a 5% margin rate means that you only need to deposit 5% of the full trade value. Brokers usually offer high leverage levels for CFD trading. AximTrade offers competitive leverage levels up to 1:infinite. With low margin requirements, traders can magnify their potential profits to the maximum. However, it should be considered that leveraged trading magnifies losses as well as profits.

• Diversity of Trading Opportunities: Contracts for difference are offered on a variety of markets and assets including commodities, currencies and indices which diversifies trading opportunities and allows greater flexibility.

Read more about CFD on AximDailyto understand disadvantages and how to start CFD trading.