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What is CFD

How CFD trading may work for you

So you think you have a basic grasp on Forex and then get blindsided by CFD trades. Or maybe you’re just totally lost overall. Don’t panic! CM Trading are here to help you through the intricacies of CFD trading. With our quick guide you’ll soon feel confident enough to trade CFD to help maximize your Financial portfolio.

CFD trading is actually a fairly simple arena, and a great trading strategy for many people. However, as with so many things in the Financial market, it’s easy to get lost in the Forex jargon. We’re here to take the mysticism out of these common trading terms, and help you leverage the most from your portfolio.

So, what is CFD trading anyway?

If you are looking to trade CFDs, then you are trading Contract for Difference. This is a trading instrument that mimics the movement of the stock [or indices/ commodities] it's tracking. You never actually own the asset in question, but can still make money off of the fluctuations in its value.

This may seem an unusual trading method, but it gained traction in recent years, particularly as it can be accessed at a considerably reduced cost. This is why CM trading encourages clients to learn more about this trading style enjoy its benefits.

How does CFD trading work, then?

If you choose to trade CFD, you are basically choosing a different set of prices and risks. If you trade in a more traditional manner, you will pay for the stock you purchase and a hefty broker margin. This is a far larger capital outlay, but at that point you own the instrument you are purchasing. If it moves up in the market, you make profit immediately.

When trading CFDs, you have far less capital outlay, but do not own the instrument. You have a ‘spread’ with the broker, an amount by which the instrument needs to appreciate before you even see profit. However, once past that point it can be sold. The nature of the arena is such that you will likely lose a few cents on that sale, but the profit is outright- no broker’s fees and commissions paid further.

How does making a trade CFD advantage my returns?

CFD is a lot faster than traditional methods, especially if you want to dabble in a new arena. You can also enter into an instrument at the fraction of its real value- your capital investment is far smaller. Remember that this leverage can be a double edged sword and should be used wisely. However, it obviously offers great diversification, and enables you to leverage rising and falling markets.

It’s also incredibly convenient, and has no fixed lot size, meaning those with less to trade can still maximize their gains. In addition to that, you are never forced to take ownership of the underlying instrument. It can make for a great way for an investor with a smaller portfolio to make good returns.

Overall, CM trading believes that CFD style trades are a worthwhile technique to try when evaluating your portfolio. It offers a host of added benefits- although also some risks- that can easily be used to maximize returns in the hands of the right trader.

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CFD Trading

Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) on margin carries a high level of risk. CLICK HERE to read the full risk warning.

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