For most people, the world of financial trading appears to be a distant one; it’s for the mega rich and business savvy. However, you may well be surprised to know that it’s actually a lot more accessible than you might think, and that more and more people from everyday walks of life are getting involved. CFDs are one of the major financial products that have caught on in recent years. Let’s take a look here at what they are and how they might benefit your finances.
CFD stands for Contract for Difference, and is, in short, the difference in price between when a trade is actually entered, or position taken out, and the price when the trade is exited, or position closed. The idea is that is tracks the change in price of any financial asset, but if you enter into a CFD trade, you don’t actually own whatever it is you’re speculating on. To put things simply, CFDs allow you to make money (or potentially lose money) by speculating on whether you think the price of a financial asset will go up or down, but you don’t need to own the asset. This asset could be anything from foreign currency to oil.
Now, the advantage of CFDs is that they benefit from what is called high leverage. This means that you don’t need to put a huge amount of money into a trade to make a fair amount. Everything you win is amplified by this leverage. It’s a two-way street however; if you’re unsuccessful your losses will also be scaled up.
So how do you go about trading CFDs?
Once you’ve got an account with a broker you can deposit money with them, and start to open positions. It’s not a guessing game of course; traders use all manner of signals to help them decide whether an asset’s price is going to rise or fall. This can come in a number of forms, from studying historical trends, to looking for complex mathematical patterns in price charts. Either way, the biggest thing you must do before getting involved is to learn how the markets work.
So there you have it. CFDs are a product that allow anyone with the money to get started to begin trading the financial markets without ever having to actually buy or sell assets.