CFD or Contract for Difference involves investing on an underlying asset with the thought that its price will rise or fall in the future. The name Contract for Difference arises as only the settling of the difference in the initial and current amount of that asset takes place.
CFD trading beginners can have several questions in their mind regarding
how it works,
which countries it is available in,
and, what assets does it cover?
To address all their queries here is a list of facts that will help beginners get a clear idea about CFD trading.
FACT 1: CFD comes with leverage
In trading, leverage means that you only have to deposit a small amount to lock-in a large position. For example, a broker might offer a 10% or 1:10 leverage; with it, an investor only has to spend $1000 to buy a position worth $10,000.
This is one of the significant advantages of CFD and so attracts numerous investors all around the world.
The higher the leverage goes the more an investor can make through it. However, this also means that the risk also becomes great which can lead to potential losses.
FACT 2: CFD works with multiple underlying assets
When it comes to the underlying asset, CFD can be traded with Forex, indices, stocks, and commodities. It thereby delivers diversity in trading to investors and is also another advantage that CFD trading beginners can benefit from.
Just like Forex trading, investors can trade with all major pairs through CFD; some pairs they can invest in like EUR/USD, USD/JPY, USD/CHF, GBP/USD, AUD/USD, NZD/USD, and USD/CAD.
With commodities, traders can invest on energy, metals, agricultural products and more. Commodities coming under energy products are oil, gasoline, natural gas, and electricity. Amongst metals fall gold, silver, palladium, platinum, and copper. Coffee, cocoa, cotton, corn, lumber, live cattle, feeder cattle, rice, wheat, sugar, rice, and others, come under agricultural products.
FACT 3: CFD has different trading sessions
CFD trading differs with the asset and usually takes place depending on the US Standard Time.
Trading for all major currency pairs starts from 22:05 and goes on till 21:55 through Sunday to Friday.
Trading sessions for energy commodities like Natural Gas, Crude Oil, and Heating Oil begin from 23:01 to 24:00 and 00:00 to 21:55 Sunday to Friday.
Sessions for Wheat, Corn, Soybeans, and Rice begins from 01:05 to 13:40 and 14:35 to 19:10 from Mondays to Fridays.
Metals like Silver, Platinum, Copper, Palladium, Platinum, and Gold get traded from 23:01 to 24:00 and 00:00 to 21:55 through Sunday to Friday.
FACT 4: CFD allows trading both long and short
Investors speculating the price of an asset to go up in the future can capitalize on it. However, if they assume that the price of an asset can go down in the future, then they can also take advantage of it.
As only the difference is settled so CFD trading beginners can profit from both the increased or decreased amount minus the initial amount.
The above mentioned facts can help CFD trading beginners get a clearer idea about how the process works. However, they need to keep in mind the various risks that come with CFD and the countries they are available in.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.