What is CFD?

A contract for difference (CFD) is a type of derivative product that pays the difference between the opening and closing prices of a trade. CFDs are a tax- efficient way of speculating on the financial markets and are becoming more popular among FX and commodities traders. CFD trading allows you to speculate on the rising or falling prices of fast-moving global financial markets, such as forex, indices, commodities, shares and treasuries.

How do CFDs work?

When looking at CFD trades, there are two prices to consider: the buy price and the sell price. The trader’s choice between the two will depend on whether they think the price of the asset will rise or fall. A “long position” takes place when a trader buys an asset, expecting its value will go up over time. They will buy at a low price but sell at a higher price as the asset appreciates. A short position is entered into when the trader believes that the value of the asset will decline. The trader sells the asset with the hope of buying it back at a lower price, should the value decrease. If the value of the asset instead rises, then the trader may lose money on the initial sale