CFD – Contract for Difference

CFD (from eng. Contracts For Difference) – translates as “Contract for Difference”. CFD is a contract (agreement, agreement) between two parties, the subject of which is the exchange of the difference between the opening and closing prices of a position on a particular trading instrument. This difference is multiplied by the size of the underlying asset under the contract. The result is profit or loss. CFD became widespread at the end of 1999 due to the rapid development of the Internet. Traders have appreciated this derivative financial instrument, and it has become very popular. 

The essence of CFDs

The CFD market was formed in the UK in the 80s of the last century. The essence of CFD lies in the fact that a trader can enter into transactions for the purchase and sale of a share without owning this share, i.e., the trader does not become a shareholder of the company. However, he has the opportunity to profit from stock price fluctuations. This creates especially favorable conditions for instant and short-term transactions in the CFD market. CFDs are also used in other markets, such as futures.

In trading on the CFD market, the margin principle is used. Trading on financial markets using CFDs does not require large capital. When buying or selling goods, the trader must ensure the amount of a security deposit, which, depending on the contract, can be 5-15% of the total cost of the goods. 

Using the CFD instrument, you can make both purchase (Buy) and sell (Sell) transactions. If your goal is to profit from changes in commodity prices, then CFDs are the perfect tool to make such trading much easier and more flexible. You do not need to worry about possible deliveries of real goods, complicated paperwork, transportation and storage of goods, etc. At the same time, it becomes possible to trade fractional contracts, starting from micro, which allows you to enter the market with fairly small deposits and trade effectively.
Benefits of CFDs

The main advantages of CFDs are:

Possibility to make not only long positions (Buy) but also short ones (Sell)
CFDs allow short selling as easily as placing long positions, which was previously available only to professional investors. 

Trading in financial markets with a small deposit

When trading CFDs, you do not need to have the full amount of the transaction. It is enough to have a security margin, which, on average, is 5-15 percent of the transaction size. This property gives trading flexibility because. It allows you to allocate funds to your trading account more efficiently.

A convenient tool for hedging
If you need to eliminate the risks associated with changes in prices for any commodity or currency, you can carry out a hedging operation. CFD is a very convenient hedging tool. 

stock quotes

CFD trading is based on stock quotes so that you can check the quotes on the relevant exchanges at any time. 

Fast execution of transactions

High speed of execution of transactions on CFD contracts.
Transaction volume
Unlike full futures contracts or share blocks, the volume of which is standard and equal to 1 and 100, respectively, the minimum trade size for CFDs is 0.01 lot (for futures) and 1 share (for the stock market).

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