A ‘Contract for Difference’ or CFD for short consists of an agreement (contract) to exchange the difference in value of a particular currency, commodity, share or index between the time at which a contract is opened and the time at which it is closed. The contract payout will amount to the difference in the price of the asset between the time the contract is opened and the time it is closed.
If the asset rises in price, the buyer receives cash from the seller, and vice versa. There is no restriction on the entry or exit price of a CFD, no time limit is placed on when this exchange happens and no restriction is placed on buying first or selling first. CFDs are traded on leverage to give traders more trading power, flexibility and opportunities.
CFDs offer all the benefits of trading without having to physically own the instrument.
The ‘contract’, mirrors the price and performance of the underlying instrument.
As with traditional trading, your profit or loss is governed by the price you buy at and the price you sell at (and vice versa for short-selling).
CFDs are a ‘margined’ product, allowing you to make the most of your trading capital, since you only deposit a small fraction of your money.
Each foreign exchange (FX) currency ‘pair’ has two interest rates associated with it. Invariably, both interest rates will be different and this is how ‘swap’ or ‘rollover’ is either earned or paid.
Benefits of Trading FX as a CFD
- No Time Limit
CFDs do not expire – unlike futures-based contracts – and there are no settlement cost or restrictions
- Trade Long & Short
The opportunity to profit from falling as well as rising markets and a very efficient hedging tool
- Trade size
Minimum trade size of 0.1 lot – trade from as little as 0.1 lot ( 10,000 units)
Opportunity to maximise capital efficiency and very effective as a hedging tool
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Risk Warning: CFDs, which are leveraged products, incur a high level of risk and can result in the loss of all your invested capital. Therefore, CFDs may not be suitable for all investors. You should not risk more than you are prepared to lose. Before deciding to trade, please ensure you understand the risks involved and take into account your level of experience. Seek independent advice if necessary.