Trading contracts for difference (CFDs) is a popular method of participating in the financial markets that allows you to speculate on the rising or falling prices of fast-moving global financial markets, such as shares, indices, commodities, currencies, and treasuries. Here’s a comprehensive guide to help you understand CFD trading inside out.
A CFD is a derivative product that enables you to gain exposure to the price movements of an underlying financial asset, such as a stock index, without actually owning the asset. When you trade a CFD, you agree to exchange the difference in the price of an asset from the time the contract is opened to when it is closed.
One distinct advantage of CFDs is the ability to trade on leverage, giving you a greater market exposure by only needing to commit a fraction of the trade’s full value. This can lead to magnified profits but also magnified losses, so it’s essential to manage risk effectively.