CFDs are contracts (derivatives) that replicate the performance of shares, stock indices, foreign currencies or metals. A contract for difference can be considered roughly as a purchase of shares through a loan. A buyer of a CFD gets all the benefits of the underlying stock, including price rises and dividends, and pays the seller for the cost of lending it them. As such, it is similar to borrowing money from the bank to buy shares: the investor benefits from share price rises from the purchases made using the loan, and bank takes interest on the loan. CFDs combine this process into one transaction. In cases where the underlying asset is a share, futures or commodity CFD, the value of the contract follows the shareholder value of the asset. In case of stock indices, the value of the relevant contract and the difference should mimic that of the particular index in question. CFDs are a tool which allows you to receive all of the benefits from the change in the price of the asset without specific delivery thereof. In addition, time and cost usually spent on purchasing underlying assets on the stock exchange is significantly reduced.
Trading commodity futures CFDs is practically no different from trading currency pairs on the Forex market. To successfully trade commodity futures CFDs, you must carefully examine the trends of the relevant market. This will help you understand the reasons that lead to the rise or fall in the prices of certain commodities. For example, the price of such commodities as oil and precious metals depends on many factors, not just the economic output of exporting countries and their plans regarding production in the near future. Fluctuations in oil prices can be observed and are linked to the publication of data about stocks. When trading futures contracts for commodities, universal methods that work equally effectively in all markets can be used, in addition to specific, study-based economic methodology that affects pricing. Futures have an expiration date, so it is necessary to close contracts for difference.
At the core of share CFD trading is the familiar principle of carrying out operations on the Forex market. At the present time, entering onto the CFD market requires little start-up capital, due to the availability of margin trading. CFDs for stock indices are a specific financial instrument, the use of which gives traders the opportunity to make profit on changes in stock market indices values. The underlying asset in this case is a stock market index. Each point of the index is equal to a predetermined amount. It is also necessary to take into account the fact that changes in indices usually amount several thousand pips per single trading session. This tool allows you to make decent profits, but at the same time, in cases of negative outcomes, be prepared for large losses. CFDs for indices have low margin requirements compared to futures contracts. CFDs for stocks allow speculators to earn from small movements in the underlying asset price during the trading session. CFDs are an excellent alternative for people accustomed to trading stocks and physical currencies that are interested in investing in a more flexible instrument.