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What is CFD trading?


The Contract for Difference (CFD) is an agreement made for trading in financial derivatives where even the variations in a settlement between open and closing trade prices are fixed in cash. There is no transfer of physical goods or securities to CFDs. CFD prices are referenced in two prices: the purchase price and the sale price.

  • The selling price (also known as the bid price) is the value of where a short CFD can be opened.
  • The purchase price (also known as the offer price) is the price where a long CFD can be opened.

Selling prices would always be marginally lower than the actual market price, and purchase prices will be substantially higher. The distinction between the 2 prices shall be considered as the spread. Check to know more info.

Almost all of the time, the cost of opening a CFD position is addressed by the spread: i.e. purchase and sale prices will be modified to account for the cost of trading. The exception to this is the share of CFDs that are not charged through the spread. Instead, purchase and sale prices align the price of the underlying market, and the keep charging for opening the CFD position is based on commission. And using the commission, the act of speculation on stock values with CFD is closer to selling and buying shares in the market.

Most CFD traders do not have a fixed expiry date – unlike options. Rather a position is closed by putting a trade in the reverse direction of the one that decided to open it. For example, the purchase of 500 gold contracts will be shuttered by selling 500 gold contracts. See also to know more.

In order to determine the gain or loss from the CFD trade, you increase the size of the agreement of the position (actual number of contracts) by the worth of each contract (demonstrated per point of movement). You will then multiply that estimate by the distinction in points between the cost when you started opening the contract and when you close it.

 

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