Essentially, a contract for difference (CFD) is a contract between an investor and broker. It enables the trader to speculate on increasing or decreasing prices of the financial markets, such as forex, share, commodities and indices. Once the contract has ended, the two parties will then exchange the difference of the opening and closing price of the specific financial instrument.
With CFD trading, you can trade on margin and therefore can sell if you predict the prices will fall, or buy if you speculate that the prices will rise. CFD trading allows you to access the global markets without the need to buy the underlying asset at full value. This gives traders the flexibility to trade falling and rising markets, with the opportunity to hedge risk exposure.
Trading with CFDs means working on contract price differences: they profit or generate losses based on the difference between the purchase price and the selling price of the underlying, multiplied by the number of CFDs.
Margin/leverage notice: due to regulatory requirements the default CFD leverage is set to 1:50. Traders will have the ability to adjust leverage according to their level of experience during the registration process.
As is with other derivatives and investments, CFDs are considered risky and complexed investment products. It is recommended to only invest if you are familiar with trading investing in margin traded investment products and also only invest capital you are willing to lose.