Risk warning:Â FX and CFD trading involves a high risk of loss.
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Risk warning:Â FX and CFD trading involves a high risk of loss.
What is CFD Trading?
A Contract for Difference (CFD) is a popular form of derivative trading whose value comes from the movement of an underlying asset. CFDs are a popular gateway for investors to enter the financial markets and trade a range of well-known assets.
CFD trading is simply speculating on the rising or falling prices of global financial markets – such as indices, commodities, shares or cryptocurrencies. A CFD trade is basically a contract between an investor and a broker to settle on the difference in the value of a financial asset or instrument for the duration of the contract. At the time of closing the contract (a trade), if the price is higher than the opening price, the buyer will profit. The seller has to pay the buyer, the difference, and that will be the buyer’s profit. The opposite is true if the trade price is lower than the opening price.
How do CFDs work?
There are two prices to look for in a CFD trade: buy price and sell price. Which one you choose will depend on whether you think the price will rise or fall.
- Long position:Â 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.
Discover our CFD instruments
Commodity CFDs
Gold, Silver, Bronze etc.
CFDs on Indices
Major global indices
CFDs on Stocks
Indian and US Stocks
CFDs on Crypto
Bitcoin & Ethereum
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There is a reason why our Clients Choose WolfCFD for Forex Trading, Stock Indices Trading, Commodity Trading, Stock trading,
CFDs vs share trading
Learn the difference between CFD and share trading. Explore the benefits of each with our comprehensive guide and view a detailed side-by-side comparison of both trading types.
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