If you’ve been investing for awhile and are looking at some alternative ways to put your money to work, you might want to consider CFD trading. It has become a popular way of trading on equity derivatives in the last few years. There are a number of benefits related to this form of investing.
If you are a beginner, you need to know some useful information on the derivatives product CFDs. Here we will see what it stands for, give an example and show some rules to follow when trading.
Contract for Differences (CFD)
CFD stands for contract for difference. It is an equity derivative trade and is an agreement between the trader and the broker. The agreement is made to exchange any differences in value of an underlying asset between the time when the contract is opened and when the contract is closed without ever owning the underlying asset.
CFDs complement traditional investing methods such as trading in individual stocks. Although requiring some study before proceeding, CFD trading is easy to understand and trades well in the different types of underlying markets.
CFDs are similar to the futures and options branch of trading. The closest cousin of trading CFD online is spread betting.
Example of CFD Trading