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CFDs Trading
Trade CFDs on over 400 Stocks, Indices and Commodities
What are CFDs?
A CFD or Contract For Difference is an agreement made between a Seller and a Buyer for the difference between the opening and closing price of a particular financial instrument.
Trading CFDs essentially puts yourself against the market. You open a Buy or Sell position for a CFD on an asset with the expectation of profiting from the difference between the Opening and Closing prices.
The Opening price is the value of the CFD when you open the trade and the Closing price is the value of the CFD when you close the trade.
Open a Buy position on a CFD at X and close it at 2X and you’ve made a profit on the trade. CFD trades can be Long or Short so the reverse works in your favor as well. Open a Sell position on a CFD at 2X and close it at X and you’ve made a profitable trade.
How to trade CFDs
As with most traded securities, CFDs can be traded Long or Short. If you believe the value of the undying asset will rise, you open a Long trade, hoping to sell the CFD for more than the initial purchase price.
If you believe the value of the underlying asset will fall, you open a Short trade, hoping to cover the position at a price lower than your sell price.
CFD trades are made on fixed contract sizes and not the actual underlying asset. For example, CFDs on Stocks are negotiated on the value of 100 shares in the company in question.
For example, a CFD on Facebook stock would be for the value of 100 shares in the company. At current prices of around $280, the contract price of a CFD in the social media giant would be for $28,000.
If you open a Buy position for a CFD on Facebook and the share price rises to $290, then your closing value would be $29,000 for a profit of $1,000 on the trade.
It’s important to note here that you aren’t buying the actual shares. CFD trades involve monetary value only and not the delivery of any underlying assets.
CFDs are leveraged products, where leverage is essentially a “loan” your broker makes to you. Open an account with a broker offering 1:30 leverage and for every $1,000 you deposit in your account, your broker would effectively lend you $30,000 in trading power.
At this 1:30 leverage, opening a CFD contract for our Facebook example would require funds of $933 in your account.
CFDs can be traded in both directions. Buy positions if you believe the price of the underlying asset will rise and Sell positions if you believe the price of the underlying asset will fall.
TradeGM offers CFDs on Commodities, Indices, and Shares on the MetaTrader 4 trading platform, the platform of choice for millions of traders around the world.
“For difference”
At this leverage, you would need $2,845.56 in your account to trade a full contract of Google shares. Sticking with the Google example, if you believe the share price will increase, you will Buy a contract which would then be Sold back at the higher price. This is where the “for difference” comes in. There is no physical delivery of Google shares involved. The contract is purely for the difference between the opening and closing prices. Buy a contract for Google at USD 853.69. Let’s assume the share price rises to USD 875.69. Closing the trade makes a profit of $22 per share (875.69-853.69) for a total on the contract of $2,200 (22 x 100).
Conversely, if we think Google shares will fall in value, we would sell a contract at the USD 853.69 level. Assuming the price falls to USD 831.69, the closing the trade again makes a profit of $22 per share for a total on the contract of $2,200.
