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What is CFD Trading?
How do CFDs work?
- Long position: A long position takes place when a trader places a BUY trade. Here, the trader expects the asset value will rise over time. The trader will BUY at a low price but SELL once the price rises.
- Short position: A short position happens when the trader feels there will be a decline in the value of the asset and selects a SELL position. However, the trader intends to buy the contract back at a later stage when the value of the asset increases, thereby profiting from the entire exchange.
Consider this example: You see that GOLD is currently priced at USD$1,720.15, and you speculate that its value will increase. To make a profit, you would open a ‘long’ position on the CFD at the current buy price. At the time of contract closing the price of GOLD has risen to USD$1,801.32, and the CFD position has earned profit! If the price had decreased below the initial buy price, you would have suffered a loss.