What is CFD trading?
CFDs, or contracts for difference, is a financial contract that pays the differences in the settlement price between the open and closing trades. When trading CFD (indices, energies, stocks, or commodities), you create an agreement with a broker to exchange the asset price difference between the opening and closing of the contract. Such trading doesn't imply the delivery of physical goods or securities. I.e., it offers an opportunity to profit from the difference in the asset's price without physically owning them.
How does CFD trading work?
With CFD, you trade a particular number of units. You have two options:
- Buy, or "go long." In this scenario, you expect the asset's price to grow in the future. If you're good with forecasting, you can get a serious profit even when the price changes are insignificant;
- Sell or "go short." In this case, you sell the asset if you expect the price to go down. You can repurchase the same asset right after that at a lower price.
CFD has a leverage of 1:200, an excellent way to enter the market without significant initial investments. Thus, you can operate with orders 200 times bigger than your deposit.
In other words, when you want to buy a CFD unit of an asset, you only invest a small part of the total value, but the profit will be calculated out of the total asset's price.
Also, please, consider that the Swap Free option is not available for trading on these instruments.