CFDs – What are they, and should you invest?

 CFDs – What are they, and should you invest?

CFDs – What are they, and should you invest?

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CFDs explained

Contracts for difference, or CFDs, are arrangements made in financial derivatives trading. This involves the settlement between the open price and the closing price on a trade being settled in cash. It is important to note that with CFDs, traders do not take physical delivery of either the goods or the securities that they trade. CFDs are used by traders to bet on prices, moreover, on whether the security or underlying asset’s price will rise or fall. CFD traders will buy should the price show an upward movement and sell should it show a downward movement. In addition, should a CFD buyer see an increase in the price, they can offer their holding position for sale and the difference between the purchase and sale prices is netted. Should a trader believe that the price on a security will fall, they can open a sell position, and to close that particular position, they must buy an offsetting trade. In both these scenarios, the difference represents either the gain or loss from the trade, subsequently settled through the trader’s account with their broker.

In which markets can you trade CFDs?

The main CFD market types include forex, commodities, metals, energies, global stocks and stock indexes.

Why should you trade in CFDs?

Here are a few reasons why you should consider trading CFDs:

  • They can be traded using leverage, which allows for the opening of larger positions that can earn substantial profits when used responsibly.
  • They grant flexibility as they offer more financial instruments.
  • Lower trading costs and lower commissions.
  • You can place a short CFD and can profit from the fall in a security’s price.

Chris Louw

Featured Financial Writer for SA Shares - Read more about Chris's Bio -

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