Contracts-for-difference (CFDs) are popular trading instruments that provide investors with unique potential opportunities to profit in specific markets.
This includes taking advantage of certain assets price movement, without actually owning the asset itself.
Thousands of CFDs exist, which are now a common fixture amongst brokerages’ offerings. CFDs are quite simplistic, as profit is calculated as the difference between the entry point of the trade and its exit point.
Popular Types of CFDs
CFDs cover virtually every asset class, including the stock market, fixed income, exchange-traded-funds (ETFs), cryptocurrencies, commodities, and more.
- Stocks: Investors can trade CFDs of shares of specific companies in the market. As the largest category of CFDs, traders can choose amongst thousands of popular companies without owning physical stock.
- Indices: Similar to stock CFDs, many traders prefer to trade an entire stock index such as the Nasdaq, Dow Jones, or S&P500. This is a popular option for investors who prefer a more diversified exposure into markets, unlike a specific company.
- Bonds: Many companies or governments issue bonds in exchange for funds borrowed. In particular, US Treasuries are also very commonly traded CFDs, and are impacted by a wide range of factors across financial markets.
- Commodities: The most common commodities CFDs include gold, silver, and platinum, without owning a physical metal. Investors in agricultural commodities or energy also can explore opportunities in CFDs. This differs from trading these assets across futures, which is extremely volatile and risky.
- Exchange-Traded Funds: These instruments are also traded in a similar manner as stocks but offer different exposure to markets immediately. ETFs represent combinations of financial assets put together from different classes of assets.
- Cryptocurrencies: Crypto CFDs are quickly becoming more popular as demand for cryptos increases. The advantage of using crypto CFDs such as Bitcoin means not having to utilize a crypto exchange, which carries its own risk.
Are You Ready to Trade CFDs?
CFDs trading presents its own advantages and disadvantages compared with other instruments. There are several factors you must consider before actually trading CFDs:
Every broker has a specific margin requirement that you must be aware of. This will affect a trader’s ability to trade a specific type of CFD. Different brokers that are regulated must abide by to different leverage restrictions that clients must also adhere to.
Possibly one of the most important things to consider is if your broker is regulated. There are countless scams and fraudulent operations out there so choosing the right broker is key. Always find out if your broker is regulated to provide CFDs, which can be located on any brokerage website.
Trading Tools on Offer
CFDs are extremely volatile so traders need to have all the information they can at their disposal. The best brokers all provide clients with several trading tools, indicators, and analytics. These are integral to the success of any trader.
Risk Disclaimer: CFDs are complex instruments and carry a high risk of losing money quickly due to leverage. 78.94% of retail investor accounts lose money when trading CFDs with this provider. The information contained in this market review should not be construed in any way, as containing investment advice and/or a suggestion and/or solicitation for any trading activity and financial transaction. The material is for general information purposes only (whether or not it states any opinions). Nothing in this material is (or should be considered to be) legal, financial, investment or other advice on which reliance should be placed. There is no guarantee and/or prediction of future performance. EuropeFX, its affiliates, agents, directors or employees do not guarantee the accuracy and validity of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Trading Forex/CFD’s carries a high level of risk and can result in the loss of your whole investment. Forex/CFD’s are leveraged products and therefore Forex/CFD’s trading may not be appropriate for all investors. It is recommended that you do not invest more money than you can afford to lose to avoid significant financial problems in the case of losses. Please make sure you define the maximum risk acceptable for yourself. No opinion given in the material constitutes a recommendation by Europe FX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. Although the information set out in this marketing communication is obtained from sources believed to be reliable, Europe FX makes no guarantee as to its accuracy or completeness. All information is indicative and subject to change without notice and may be out of date at any given time. Neither Europe FX nor the author of this material shall be responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein. Seek independent advice if required.