A contract for difference or CFD in short is a popular form of derivative trading. It offers investors an opportunity to diversify their portfolio and open up new avenues of profit generation.
What is a contract for difference?
CFD is a contract between the buyer and seller to settle on the difference in value of a financial asset from the time the contract is bought until it is sold. A unique aspect of CFD is that you can earn profit from falling markets as well as rising ones.
Key features of CFDs
- CFD is a derivatives product – This means that you don’t actually own the underlying asset – you’re simply speculating on the prices
- CFD can be leveraged
- Traders can profit from both rising and falling prices, according to their nature of investment
Main types of CFD products
There are mainly three types of CFD products or instruments that you can trade online. Let’s take a look at them in some detail:
- Shares – By trading a share CFD, traders can invest in the shares of major brands around the world without actually owning the shares. Depending on the rise or fall in the company’s value, you can earn a profit from the world’s leading companies.
- Indices – Trading indices online is a great way to speculate on the world’s top financial markets. Indices are measured as the performance of a specific group of stocks from a specific stock exchange. Traders can choose from top indices like S&P 500, NASDAQ 100, etc.
- Commodities – The commodity markets are arguably one of the oldest forms of trading in the world. Commodities are popularly traded instruments in CFD trading. By trading CFD’s, you can invest in oil without really buying actual oil barrels. You can invest in commodities such as gold, silver, platinum or coffee online through CFD trading and can take advantage of any price movement – up or down.
How to trade CFDs
Here is an outline on how to trade CFDs:
- Choose a market – The first step is to decide which market instrument to trade on. This decision is based on your knowledge and speculative thinking.
- Go long or short – The next step is to decide whether you want to buy or sell the instrument. This is based on whether you think the price value will rise or fall.
- Select your trade size – 1 CFD is equal to 1 physical share in equity trades. For indices and commodities, the value of 1 CFD varies depending on the instrument.CFDs are leveraged products which means that you only need to have a small margin in your account in order to open a trade.Monitor and close the trade – Once the trade is placed, it needs to be monitored as the profit and loss of your CFD trade will now fluctuate with each move in the market price.
Next up, we take a look at the advantages of trading CFDs
- Global Market Access – Trust Capital offers products in all the major world markets, with round the clock access through our trading platform.
- High leverage – Lower margin requirements mean less capital investment for the trader, and greater potential returns.
- No day trading restrictions – There might be minimum amounts of capital to day trade on certain markets. CFDs are not bound by these rules and all types of trading account holders can day trade if they wish.
- Diverse trading opportunity – Trust Capital currently offers energy, index, financial, commodity and precious metals CFDs so that traders an diversify their investment portfolio.
Advantages of Trading CFDs with Trust Capital
- Swift online order execution
- Tradable on market spreads on ‘market execution’ mode
- Multiple order entry capability including stop, take profit and limit orders
- No dealer intervention; automated execution
- Direct market access with no trading restrictions
- Unlike traditional Futures, CFDs with Trust Capital are cash settled without delivery obligations
How to choose a CFD Instrument?
Trust Capital offers a wide variety of CFD instruments you can invest in, so how do you choose? Many traders prefer to start trading instruments they know well or whose information is easily available. Experienced traders can choose to diversify their portfolio, in order to maximize their profit potential.
Learn more about Trust Capital’s full range of CFDs products – https://trustcapital.com/trading-products/otc-futures