What is a ‘Contract For Difference – CFD’?
A CFD (Contract for Difference) is an arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than the delivery of physical goods or securities. CFDs are a way of trading share price movements without physically owning the share itself. You simply own a contract which you buy at one price and sell at another, making (or paying out) the difference – hence the name, Contracts For Differences.
CFD trading is a commonly used financial tool that is popular with investors because it affords them the ability to purchase the right to buy or sell a contracted amount of shares in a given stock at a certain price, for a predetermined period of time. There are many new terms to learn when you’re finding out more about CFDs, so to help you learn them our guide includes some simple definitions and examples.
Why Trade CFDs?
Did you know that by buying or selling CFDs you can:
- Trade equities listed on the major UK, US and European stock exchanges, as well as currencies, indices and commodities.
- Trade on margin, as low as 5% of the purchase price to maximise trading capital.
- Ability to trade falling or rising markets by trading long or short.
- You can limit and manage your risk using “Stop Loss” and “Limit Order” facilities.
Different types of CFDs
Equities: You can trade CFDs on equities listed on the major UK, US and European stock exchanges. There are thousands to choose from and trading hours match the underlying market.
Indices: You can also trade CFDs on the major world indices. Both equities and indices work in similar ways and are quoted and traded in the underlying currency.
Currencies: You can trade CFDs on a wide range of currencies from Euros/Yen to Australian/US dollars.
You can trade CFDs on most major commodities including gold, silver and platinum.
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