Contracts For Differences

So if you’re wondering about Contracts For Differences, and what they are, then see this description here of  CFDs.

The main features of CFD trading are:

1. The leverage.

Leverage magnifies your results. So if your trading system results in a loss, then this is magnified as well. For example with 10% margin, your results are magnified 10 fold. Or with a margin requirement of 5% it is magnified 20 fold. Leverage if often abused and results in large losses.

2. The ability to go long or short.

Many instruments and shares are able to be shorted. Not every share can be shorted.

3. A % and fixed (minimum) commissions.

For example, a 0.1% commission menas the commission each way, so it is 0.1% for entry and 0.1% for exit. If you’re holding onto positions overnight, then there are interest charges as well.

So CFD trading means trading the underlying stock, or index or whatever instrument without ownership of the underlying instrument. Instead the market maker or CFD providers are providing the market.

In trading CFDs, various types of orders are typically used, including stop loss orders, market orders and limit orders, and these apply for both short and long. Most providers cater for all or most of these order types.

CFDs have also been called financial spread betting in the UK, and now they are known as simply CFDs in most markets and CFDs on shares in the Aussie 200 or S&P 500 or stocks in an exchange are now traded. With every provider, the list of stocks tradable as CFDs can vary so check their list before trading.

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