What is CFD? CFD stands for Contract for Difference and it is a type of trading where there is a contract between two different parties defined as buyer and seller. In case of Contract for Difference, seller is supposed to pay the difference between current price of a specific asset and its price at the time of the contract to the buyer. In case the difference comes out be negative, it works the other way round wherein the buyer pays the negative difference to the seller. Contract for Difference trading is practised in United Kingdom, Poland, Netherlands, Portugal, Germany, Italy, Switzerland, South Africa, Singapore, Canada, Australia, New Zealand, Ireland, Japan, Spain, France and Sweden. If reports are to be believed then in coming future, Hong Kong will also start Contract for Difference trading. It is important to notice that Contract for Difference trading is not permitted in United States of America because of restrictions laid down by U.S. Securities and Exchange Commission on over the counter financial instruments. If we go in the history of CFD trading then it was initiated in 1990s in London. It was in year 2001 that investors realised that Contract for Difference has advantages equivalent to financial spread betting in economic growth.
Contract for Difference trading is done between investors and CFD traders. There are no specific terms and conditions in case of CFD however individual trader can lay down his own terms and conditions which need to be adhered to. Similarly, a CFD trader can name his own payouts in different manner in terms of commission, fee, account management charges etc. Another advantage here is that in case of Contract for Difference trading, no contract expires however at the end of the day if there are any open contracts they can be rolled over to next day. For a trader to earn profit it is important to maintain minimum margin. For an individual to ensure that they earn profits through Contract for Difference trading, it is essential that they calculate risk and study market trends on regular basis. This helps them in eliminating any trace of loss or at least minimise their risks of losing their money. Investors can go short or long in this case as well using margin. One also gets the option of stop loss order in this case which enables them to minimise their losses.
Today, there are many types of trading in the market wherein investors put their money on stake in order to earn profits. One can engage in conventional betting, financial spread betting, other forms of spread betting, futures etc. Depending on the level of interest and knowledge one has in one of these trades, one chooses the trade they want to indulge in. If we compare all forms of trading, then it can be said that Contract for Difference trading is most similar to futures trading. With its liquidity and leverage benefit, there are many people who are loyal to this trade and are reaping benefits as well..!!