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What is CFD trading and how does it function?
Learn all the essentials about CFDs and explore how to trade diverse asset classes using this unique derivative instrument.
What is CFD Trading?
CFD trading is a way to speculate on the price movements of various assets – such as stocks, indices, commodities, and more. A CFD, or ‘contract for difference,’ is a type of financial contract that lets you trade on these price fluctuations with us.
With CFD trading, you don’t actually own the asset itself – you’re only gaining exposure to its price changes.
Some of the key aspects of CFDs and CFD trading are explained in further detail below.
With CFD trading, you don’t actually own the asset itself – you’re only gaining exposure to its price changes.
Some of the key aspects of CFDs and CFD trading are explained in further detail below.
Two Essentials for Successful CFD Trading
You can go long or short with Contracts for Difference (CFDs)
- When trading CFDs, you're making a prediction on whether an asset's price will increase or decrease. If you believe the asset's price will rise, you'll ‘buy’ (go long), and if you think the price will drop, you'll ‘sell’ (go short). Your profit or loss will depend on the accuracy of your prediction.
- It's essential to understand that both ‘buying’ and ‘selling’ carry the risk of loss, so it’s important to know how CFDs operate before entering a trade. Additionally, take steps to manage your risk.
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CFDs tend to mirror the behavior of their reference market
- CFD trading is designed to closely reflect the performance of each underlying market. CFD prices are influenced solely by movements in the underlying market. Some assets have a spread included, while others may involve a commission – it all depends on the specific market you’re trading in.
