What Are CFDs?

Many people know that they are trading however they do not know what a CFD is and the reason why so many people trade or has access to trading CFDs. I even once had the privilege of having someone tell me that he thought a CFD means “computational fluid dynamics”. Even though that might be correct, whatever that means, in the investment industry it means contract-for-differences. So, what is a CFD in our industry?

A CFD is a contract, or agreement, between a trader and a CFD Broker to pay the difference in the entry price and the closing price when trading on a financial instrument, such as forex or commodities. As it is a contract on the price of the underlying asset there is no ownership in regards to that asset. Which means, the trader does not have any ownership in regards to asset when trading the CFD.

The question that comes into the discussion is, why trade CFDs when you can trade the actual future contracts? Trading futures contracts on the exchange requires that the entity adhere to strict requirements and standards to be able to trade on the exchange. Additionally, trading a futures contract is much more expensive to trade than a CFD. So, without the large capital and standardization requirements, CFDs make it possible and affordable for normal household individuals to trade the financial markets in addition to other benefits that include, global market access on one trading platform, high leverage and professional execution, and all it costs is just a small spread to open a trade.

That is why it so important to select the correct and well-regulated broker that can provide you with the best service possible as well as keeping your funds safe, as it will be the foundation of your trading journey.

#investments #forex #trading #learn #mentor #lockdown #broker #dreams #goals #cfds