What is CFD trading and how does it work?

CFD trading stands for Contract for Difference. The act of buying and selling a CFD is called CFD trading. Lets further dive into what is CFD trading and how it works. In this article, you will learn everything about CFDs and CFD trading. Below are the contents that we are going to discuss in our detailed article about CFD trading.

What is CFD Trading?

What is CFD trading | What are CFDs

CFD trading stands for Contract For Difference trading. CFD is a contract between two parties who agree to exchange the difference between the opening price and the closi‎ng price of a contract. When two parties decide to close the position the seller will pay the buyer difference between the current value of an asset i.e. currency, commodity, index or share and its value at initiation if the price has increased, and vice versa, if the value of the asset i.e. currency, commodity, index or share has fallen, the buyer pays the difference to the seller.

CFD (Contract for Difference) offers high leverage and provides the ease of going long/short in almost every financial instrument like currencies, commodities, metals, shares, indexes, stocks, and bonds. As it is a simple and inexpensive trading option to trade the change of price of different assets it is getting popular especially among the retail traders. CFD provides immediate execution of the orders.

CFD trading is speculation, based on your economics analysis, and you will make money trading CFD only when the price goes towards your speculated direction.

There are basically two types of CFD trading (1) short term trading and (2) long term trading. In short term trading, you hold your long/short position for a short period of time like a few hours to a few days. While in long term trading, you hold your long/short position for a long period of time like a few days to a few weeks to a few months.

History of CFD Trading

According to Wikipedia.com, CFDs were originally developed in the early 1990s in London. The credit of this innovation is widely given to Brian Keelan and Jon wood who belong to UBS Warburg.

CFDs were originally used by hedge funds and institutional traders to cost-effectively hedge their positions in the stocks on the London Stock Exchange. As there is no physical sharing of assets in CFD trading, it also avoided the stamp duty in the United Kingdom. CFD trading first emerged as OTC (Over-The-counter) or equity swap markets which were initially used by big traders like institutions, hedge funds, and banks.

In the late 1990s CFDs were introduced to retail traders and small investors. Although there were a number of companies in the UK which started/characterized online trading platform and made it easy to see live prices and trade in real-time. The first company to do so was GNI (Gerrard and National Intercommodities). Sooner than later, other companies like IG Markets and CMC markets started this in the early 2000s and made CFD trading popular among the retail traders.

In this way, CFD trading was quickly embraced by retail traders. CFD revolution actually started by the end of the decade and early 2000s and we entered a new era of digital trading. Retail traders could now easily trade their own accounts and also small fund managers and institutions were available for managing retail accounts and directly trade into the London Stock Exchange.

In the early 2000s, CFDs were only traded in the UK and London Stock Exchange. But by 2002, many CFD providers like IG Markets and CMC markets expanded their business overseas and were available in many countries like Australia, Austria, Canada, France, Germany, Hong Kong Ireland, Japan, Norway, Romania, Russia, Singapore, and many other countries.

CFDs are one of the fastest-growing business in the financial world right now. CFDs allow you to trade a wide range of instruments like currencies, shares, stocks, indexes, and commodities.
Despite the popularity, CFD trading is not permitted in many countries like the USA, and North Korea. CFD trading is not allowed in the USA due to the legal restrictions so that is the reason why CFD cannot be traded by retail investors and small traders and also there are no exchanges in the USA that offer CFDs.

How CFD Trading Works?

How CFD trading works? | CFDs

Till now we have read what is CFD trading where did it start??? and Which countries allow CFD trading? Now it’s time to understand how CFD trading works as we have already studied CFD is a contract between the two parties that agrees to exchange the difference between opening price and closing price of a contract. So that means In CFDs we are buying low and selling high in order to make a profit.

Let’s assume we opened a buy position on EUR/USD by predicting that the currency pair will go in our speculated direction i.e. will go up. Actually, the moment we opened a position we agreed to a contract with our liquidity provider.
And if our prediction was right and the pair goes up we will earn a profit according to the contract. But if our prediction was wrong and the pair slipped down we would have to bear the loss according to the contract.

So whether we are trading currencies stocks are indexes we have to make our prediction right to make money otherwise we have to bear the losses.

In another example, if a stock is trading 200$ per share and traders buy its 30 shares the total cost of the transaction would be 6000$. Definitely we don’t have to put in all the money as CFD brokers provide leverage. And if we assume that brokers have spread of 3 cents that means stock needs to climb up for 3 cents to hit the breakeven price.

So if our prediction was right and stocks climb up $201 and then we sold the stock we would make around $30 in profits. This is how CFD works. We definitely make money once we get our analysis right.

we need to reckon different factors that push the price of assets i.e currencies stocks etc. We need to understand the importance of technical analysis as well as fundamental analysis, As it will help us to predict the market direction. CFD trading works in almost all kinds of instruments like currencies, commodities, metals, stocks, cryptos, and options.

CFD trading for retail traders

Retail traders are traders with small accounts. In the last decade of the 20th century, CFD trading was introduced to the retail traders. Since then it is getting popular and popular among the retail traders. As technology progressed and the world started to become digital it also gave a new direction to CFDs as there were many online platforms like IG Markets and CMC Markets that started online services for the retail traders.

It is no doubt that CFD trading is a dangerous business to be part of as it is said that 95% of retail traders fail and only 5% of them make any money. Another reason for the failure of retail traders is they want to get rich quickly with their small trading account. While on the other hand, big institutions like banks and hedge funds are there to eat out our money if you try to over smart them.

But the question is, do we really make money as a retail trader??? The answer is yes. There are many successful retail traders out there as well. And if we make a mindset and enhance our skill to trade like a professional trader, banks or institution we can definitely make money by trading CFDs.

Another thing that you need to look up is traders become greedy and hungry. If you really want to make money as a retail trader I would suggest you to control your emotions and organize yourself. Consider trading a business. Sometimes you will be in profit and sometime you will be in lose so bear with it.

As a retail trader, we should keep in mind that we cannot over smart the big money.
There are a lot of online trading platforms that offer CFD trading for retail traders. So choose one of them but make sure they are not frauds. And start learning and implementing different strategies and knowledge about the CFDs.

Leverage and margin in CFD Trading

Leverage and Margin in CFDs | CFD trading | CFD

Another benefit of CFD trading is it allows us to use leverage to potentially increase our profits and returns. Leverage can be defined as a borrowed money that can be added with our money to take relatively big positions or in simple words leverage can be defined as the act of borrowing a certain amount of money in order to increase potential return of investment (in case of CFDs, brokers provide leverage i.e borrows money to its clients).

Leverage is used to achieve more profits with less capital. Let’s take an example you have $1000 of capital and your broker allows you to leverage your account up to 50:1 which means for every $1 you can control $50. So with your initial $1000 of account, you can control up to $50000 of account.

There are many online retail trading brokers that offer high leverage especially forex brokers. So that means with a small account we can make high profits. It is no doubt that leverage really makes CFD trading an exciting business, but it is also a double edge sword. Although it increases potential profits, it might also result in big losses and might quickly wipe out your account.

Margin is another term that is used in CFDs. In CFD trading margin is the amount of capital required to open a position in the market.

Let’s assume we want to buy $10000 worth of EUR/USD and our trading broker allows us the leverage of 10:1 that means we need to have $1000 in our account to open a position which is equivalent to $10000.

Likewise, in another example, if you want to buy $100000 worth of XAU/USD and your broker provides you the leverage of 20:1 you need to have a balance of $5000 in your account to open the position. So the amount of money that you need to have to open a position will be termed as margin.

Profit and losses in CFD trading (Examples)

Profit and losses in CFD trading (Examples)

In CFD trading, profit and loss are determined by the difference between the price we entered the trade and the price at which we exit the trade. Let’s take an example of how profit and loss are calculated in currency trading. Remember in forex trading, as currencies are traded in pairs so we can make money in both ways i.e by buying or selling a pair.

Assume we are buying/selling AUD/USD at 0.67750 and the transaction size is standard lot i.e 100000 units. And Price moves either 10 pips above or below compared to the current trading price. Let’s calculate the profit and loss on the basis of our speculation while trading CFDs.

So we speculated that the price will move 10 pips higher from the AUD/USD 0.67750 to 0.67760. And if our prediction was right and the price moved higher then we would be profitable.

As we took a standard lot in our example and the price moved 10 pips higher so in this way our profit would be $10 (100000 x 0.0010= $10). What would have happened if our prediction was wrong?? and the price fell down from 0.67750 to 0.67740? We would definitely have a loss of $10. This is how Profit and loss are calculated when we go net long on a currency pair.

Now let’s take an example of how profit and loss are calculated when we sell CFDs.
If we speculate that the price will move 20 pips below from the AUD/USD 0.67750 to 0.67730. And if our speculation was right and the price moved below then we would make a profit. As we took a standard lot in our example and the price moved 20 pips below so our profit would be $20 (100000 x 0.0020). Now again, What would have happened if our prediction was wrong?? And price moved from 0.67750 to 0.67770, definitely we would have a loss of $20. This is how we calculate profit and loss when we sell a currency pair.

Risk involved with CFD trading

CFD trading is one of the risky business to do. The reason behind this is margin trading and over-leveraging the positions while taking trades in CFDs. Margin trading means you only need to have a small capital to take a CFD trade while the rest of the portion of actual trade will be borrowed by your broker which is also called leverage.

It is no doubt that high leverage trades will result in high profits but don’t forget that it may also lead to high losses as well. Over-leveraging your trade size means you are putting your money on really really high risks. So be careful before overleveraging your trades.

Although just like other businesses in the Real-world, CFD trading is risky as well. But if you do proper research and make a proper plan, and get enough knowledge you can reduce these risks involved with CFDs. It is undoubtedly impossible to uproot risk completely, but what we can do is we can minimize risk by realizing our mistakes, controlling our emotions, increasing our analysis par, taking the help of some seniors, and by continuous learning while trading CFDs.

Your trading journal might be very helpful regarding reducing Risks involved with CFD trading ask me how? Let me tell you how, your trading journal will consist of everything like which instrument did you take a position on, which timeframe did you use, what was the lot size that you applied, what were the confluence factors that you used for taking the trade, in simple words trading journal consists of all important trading related activities.

Also, keep in mind that if trading CFDs were that easy everyone would have been multi-billionaire but if it was that difficult it would not be that famous business. So don’t get panic and learn how to trade CFDs. Make a trading journal, review it, it will definitely improve your trading.

Advantages of CFD trading

1. Leverage and margin

The biggest advantage of CFD trading is we need a small capital to start trading. High CFD leverage allows the trader to take a position with relatively small (i.e 3% or 4% of margin). There are many online trading platforms that offer high leverage thus we are required small capital to take larger positions.

2. Low trading Cost

Another benefit of CFD trading is there is little to no trading Cost. The highly reputable CFD broker will charge very little to enter or exit the trade rather they charge in the form of spread. But there are also many CFD brokers who offer zero spread account rather they charge little fees, such accounts are used by day traders and scalpers.

3. Accessibility

Trading CFDs will allow you to access the different and almost all the financial markets in the world. Be it a forex market, stock market, share market, you can easily access multiple instruments with just a single account. So CFD trading has made the world quite simple and you can access multiple markets and multiple assets around the globe whenever you want.

4. Long and Short opportunities

CFD trading allows you to make money in both rising and falling markets. CFD trading has many markets which are very liquid and have huge volume. Look at the forex market it is the most liquid market in the world when it comes to the financial markets. When a market is highly liquid that means you can easily buy and sell assets in that market.

5. 24/7 market

Another benefit of CFD trading, It has many markets that are usually open 24/7. Forex market is the 24-hour market in the 5 days of the week. You can trade the crypto market 24/7. Thus it allows the trader to trade whenever they want to trade without being bound to a few hours of trading.

6. Hedging

As I mentioned earlier, CFDs allow trading in both rising and falling markets. It also allows you to open buy and sell position on the same asset thus minimizing the risk of losing the money in a volatile environment.

Disadvantages of CFD trading

1. Leverage a double-edged sword

Although leverage provides the advantage of having a small margin to open a large position in CFDs. But it is also a double-edged sword. Taking big positions with high leverage and small margin can also hit you hard, and you might also end up blowing up your all the money. So be careful while opening a position in CFDs and use appropriate leverage.

2. Regulation

Another disadvantage of CFD trading is regulation. There are a lot of scam brokers out there who just want to scam you they are not regulated. So be careful while choosing a CFD broker. Do thorough research before choosing a CFD broker, check out whether that broker is regulated with any of the financial regulatory authorities or not.

3. Interest Payment

If you hold your trades for a long period of the time you have to pay ever-increasing interest payments.

4. Over-trading

When you trade CFD instruments like currency, shares, stocks, options. It also ignites emotions as well. People want to get rich quickly and want to make thousands of dollars in minutes. So they just start over-trading because they have made their mindset of getting rich quick and end up blowing all of their money.

5. Abrupt volatility

Another disadvantage of CFD trading is CFD assets are news or event sensitive. If something happens suddenly (like political event, economic event) that will bring huge volatility in the market. Especially if you are currency traders, you will often have to face imbalance volatility as there are 10s of economic news and reports coming out every day. This volatility can haunt your trades and may stop you out. So be careful when the market is highly volatile.

6. Lack of ownership (and Accountability)

Another disadvantage of CFD trading is the lack of ownership and accountability. In CFD trading we do not buy shares, currencies or commodities directly or physically so there is no underlying ownership in CFDs. So lack of ownership and accountability is what makes CFD trading less robust (But not that much).

Hedging the positions in CFD trading

There are a lot of strategies that can be used to trade CFDs. One of them is hedging. Hedging is a method in which traders take opposing positions on the correlated instruments or buy and sell the same instruments. This method is used to prevent losses and protect your profits especially when there are high volatile market conditions and uncertain price movements in price are expected.

Although hedging is used when prices are extremely fluctuating, hedging strategy can also be used when a certain CFD instrument reaches its profit target and you don’t want to close your position rather you just hedge your position and lock in the profits.

Let’s take an example if you buy AUD/USD at 0.68400 and the market rightly moves towards your direction for about 100 points and instead of closing your position or instead of using stop loss you just went short at 0.68500.
If the market keeps moving up/down you will still have 100 points of profits in your pocket as hedging just protected you from being stopped out or closing your trade in loss.

As we know there is a wide range of events (events like, bank speeches, annual reports, interest rates, political events, etc.) that possibly bring extreme uncertainty and volatility in the market. So in such scenario, you need to have a good strategy to be on the safer side otherwise uncertain price fluctuations might lead to huge losses.

The biggest benefit of hedging is it protects you from complete disastrous and gives you some profits. CFD trading itself is a very risky business so try to play with safe hands.

Remember hedging is a low-risk low-profit business. In my view, it should not be used in normal market conditions and a routine trading environment. So it’s all up to you when you want to hedge the market.

Famous CFD trading Terms

Ask price

Ask price is the price a trader will buy a CFD at. For example, if you speculate that the AUD/USD will rise and it has an ask price of 0.69032, that means you are willing to buy the AUD/USD on that price.

Bid Price

Bid price is the price a trader will sell a CFD at. For example, if you speculate that AUD/USD will go down and it has a bid price of 0.69031 that means you are willing to sell the AUD/USD on that price.

Long

Going Long in CFDs | CFD trading | CFDs

The ‘long’ is often used term in CFD trading. Going long means you are buying a CFD at the lower price with the prediction that you will sell it at a higher price.

Short

Going Short in CFDs | CFD trading | Short Position

The ‘short’ is another often-used term in CFD trading. Going short or taking short position means you are selling a CFD at a certain price level.

Pip

A pip is the smallest price change in a CFD instrument. For example, NZD/USD is currently trading at 0.65920 and its price rises to 0.65990 that means the price of NZD/USD increased by 7 pips.

Spread

Spread can be defined as the difference between the Ask price and the Bid price of CFDs. As for example, EUR/AUD has the Ask price of 1.61128 and its Bid Price is 1.61126 that means EUR/AUD has a spread of 2 points.

TP

In CFD trading, TP stands for Take Profit. It is kind of limit order that is used to automatically close a position when the market reaches a certain price level.

SL

In CFDs, SL stands for Stop Loss. It is kind of limit order (to limit your losses) that is used to close your position automatically on a certain price level if the market turns against your prediction.

Trailing Stop

A Trailing Stop is a type of order that follows the positive market moves automatically. In simple words, Trailing Stop automatically changes the level of stop-loss when the market moves in your predicted direction.

My Final thoughts on CFD trading

CFD trading is one of the quickly growing businesses in the world. Although it is risky it worth taking the risk. Since the internet has taken over the world and turned the world into a global village, it also made CFD trading very easy as digital trading concept has become the core of trading.

There are many online trading platforms that give you easy access to many financial markets and you can trade different CFD assets under a single account. It is no doubt that CFD trading is a risky business and many traders just give up trading with that fear. And if you want to be successful as a CFD trader, you need to work on yourself. Get an education first, control your emotions, and practice as much as you can. There is no shortcut to be successful in any business of the world.

Like I said before it is quoted that there are only 5% of the traders who are actually successful while the rest of 95% lose their money in trading. So before investing in CFDs, start investing yourself. Follow the successful traders read their books, blogs, and articles. There are many CFD trading platforms that allow you to open a demo account, if you are a newbie then open a demo account on any of the regulated CFD platforms and practice what you learn.

Another thing that you need to keep in mind is that, in CFD trading, there is no strategy that wins you every single trade. If somebody is telling you that they have no loss strategy they are telling you a lie. You will not win all the time, but if you use proper money management techniques, use good risk to rewards ratios, and control your emotions you are definitely going to be a profitable trader at the end of the day.

In CFD trading if you win 40% to 50% of your trade you will still be able to make enough money. So my advice to you is to follow the path of successful traders.

FAQs about CFD trading

Below are some frequently asked questions about CFDs.

What is CFD trading?

CFD stands for Contract For Difference. It is type of trading in which you do not need to hold the underlying assets physically. In CFD trading, two parties agree to exchange the difference between the opening price and the closing price of an asset. You can trade CFD on currencies, share, stocks, and options, etc.

How does CFD works?

In CFDs, profit and loss are calculated on the base of the difference between the opening price and closing price of assets. Let’s take an example, you bought AUD/CHF at 0.67000 with a lot size of 10000 units and its price rose to 0.67500 i.e 50 pips according to your prediction thus you made a profit of $50 (10000×0.0050=50).

Is CFD a gamble?

Unfortunately, CFD trading is perceived as gambling by many people. But that is not the reality, to me, it is the biggest business in the world. Many CFD brokers allow you to access hundreds of the markets and financial instruments under a single account. But if you over-leverage your trades then CFD trading will definitely become a gamble, because a single move of the market can wipe out your whole account.

Is CFD trading Safe?

Yes, CFD trading is safe if you follow all the steps that you need in order to protect your money. Like you should always be careful while choosing the broker. As there are a lot of scam brokers out there. Always select a regulated and reputable broker for trading CFDs. Another thing is money management, do not spend your whole money in a single trade, get proper education first. In this way, you will be on a safer side while trading CFDs.

Is CFD legal?

Another often asked question about CFDs is, are they legal? Yes, CFD or CFD trading is legal, and there are many notable regulatory authorities that regulate CFD brokers in order to protect traders’ capital. In the beginning, CFDs were only legal in Countries like UK and AUS, with the time, they were expanded to other countries as well. There are still many countries (like the USA) that don’t allow CFD trading.

How do you calculate CFD Profit?

In CFD trading, the Upcoming market direction is predicted by the previous history. And if your prediction becomes right you earn profits. If you buy 10000 units of AUD/USD at the price 0.68222 and market rises 10 pips your profit will be $10 (10000×0.0010=10). This is how you calculate profits in CFD trading. CFD trading assets include currencies, indexes, futures, commodities etc.

How long can you hold a CFD?

How long can you hold a CFD? | CFD trading

There is no particular duration for how long you can hold a CFD. If you scalp CFDs then you usually hold the trades for about 1 minute to 1 hour and if you are a day trader then you can hold a CFD from 1 hour to a day and if you are swing trader you might hold a trader from a day to weeks. So there is no particular scenario, it totally depends upon what type of trader you are.

How do the CFD platform make money?

CFD brokers have made the life easy for retail traders, but the question is how they make money, CFD broker usually make money in two ways either they charge per trade fee or they charge their fees in the form of spread. It depends on their account type. Like in FBS CFD broker if you have ecn account or zero spread account you will have to pay trading small trading fees if you have standard account they will charge from you in the form of spread.

How much CFD traders earn?

Traders earning totally depend on how much you risk. 5%-6% monthly return on your initial deposit is more than enough for you as a CFD trader. So for example, you have $50000 in your account, and if you monthly ROI is 6% then you will make around $3000 per month. Do not risk all of your money on a single trade, in fact never risk more than 2% of your account per trade.

Can you get rich trading CFDs?

Can we get rich trading CFDs? Yes, you can, but the thing is how compose you are as a trader. Remember you cannot get rich overnight. Successful traders spent their time and money on enhancing their skills. They are really patient. So try to enhance your trading skills and be a consistent trader you will get rich automatically.

What is a CFD fee?

When you trade CFDs through online CFD trading platforms, you have to pay charges to the broker in order to trade CFDs. Although different CFD brokers have different fee of trading CFDs. Whether you pay those charges in the form of spreads or the commissions it depends on the account type you open with the CFD broker. IGmarkets charge 0.8% for mini lot, and their spread usually start from 0.6 points.

Can you lose more than you invest in CFD?

It is another asked question, do we lose more than we invest in CFD??? The answer is, it all depends upon how skillful trader you are. It is no doubt that 90%-95% of retail CFD trader losses so that means you will also lose??? Absolutely not. If you trade with patience and proper risk management you definitely make money in the CFDs. But remember if you adopt shortcuts to be rich you will definitely lose your money in CFD trading.

What is the best CFD trading platform?

If you want to trade CFDs you definitely need trading platform as well. So you need to be extra careful while choosing the CFD brokers. As there are thousands of scam brokers out there. Always choose broker that are fully regulated, and provide easy deposit and withdrawal methods. Another thing try to avoid market makers rather choose ECN broker if you want to be on the safer side.

How do you successfully trade CFDs?

To be able to successfully trade CFDs, you need to focus a lot of factors. First get education about the CFD trading then implement it. Open demo account on any of the good CFD trading platform and practice what you learn. Remember never try to be a perfect trader, properly plan your trades, make a trading journal, all these things help you to successfully trade CFDs.

Are CFDs dangerous?

No, CFDs are not dangerous at all. Rather it is the trader who makes them dangerous. If you trade with proper money management everything is gonna be fine. Do not risk much of your money and also do not over leverage you trading, because high leverage can also burn you capital. So CFDs are not dangerous by any means.

What is the difference between CFD and Futures?

The biggest difference between CFD and future is, we trade CFDs through online CFD brokers, while Futures are traded through stock exchange. And other thing is CFDs can be traded over thousands of the markets while Futures are traded in relatively less markets. Like we learned earlier CFDs do not have any expiry while on the other hand Futures have expiry dates. So this is how CFDs are different than futures.

Does CFD expire?

What makes CFDs amazing is they do not have any expiry dates unlike options and futures. In CFD trading there is a contract of price difference between the two parties i.e broker and the traders. Advanced technology has made it lot easier for traders to trade CFDs. Futures and options are expired after 6 months or quarter but CFDs do not.

Is CFD trading Taxable?

As in CFD trading you do not buy underlying assets, you just trade the price difference and earn profit and loss according to contract size. Therefore you do not pay stamp duty. That is the reason why CFD getting popular among small and big investors. But you will have to pay the CGT (Capital Gain Tax) if you cross your CGT threshold.

What are CFD tools?

There are many CFD tools that can be used in CFD trading like advanced charting, backtesting tools, and many other technical analysis tools. Technical analysis tools include moving averages, Bollinger bands, MACD, RSI, stochastic oscillators, support and resistance, trend lines, and Fibos etc. So if you want to analyze CFDs, those tools can add extra help to your CFD trading analysis.

What is the best CFD software?

In my opinion, the best CFD software platforms are MT4 and MT5. Metatrader 4 is widely used electronic trading platform used by thousands of CFD, forex, and stock traders. It provides live streaming prices and charts. It also has tons and tons of tools that you can use to perform technical analysis. It allows you to connect 100s of the brokers with it.

Why CFD analysis is done?

Why CFD analysis is done? | CFD trading

In CFD trading, analysis is done in order to find trading opportunities. Should you take a buy or sell position on an instrument is all depend on your analysis. There are mainly three types of analysis that are used in CFD trading i.e 1. Technical analysis 2. Fundamental analysis 3. Sentiment analysis.
Technical analysis is done in order to analyze charts, while fundamental analysis is pertain to analyzing outside economic event and their impact, and sentiment analysis is done to find out whether traders are buying or selling an instrument.

Is CFD trading legal in Uk?

Yes, CFD trading is legal in Uk. In fact, the UK was the first country to globalize CFD trading. As there are no strict laws regarding trading UK, therefore CFDs are very popular among UK traders. FCA (Financial Conduct Authority) is the notable regulatory authority in the UK for the regulation of CFD brokers.

Is Forex the same as CFD?

The difference between Forex trading and CFD trading is that in Forex trading we trade only the currency. while on the other hand, CFD trading covers 100s of the markets like stocks, indices, metals, and currencies itself. That is what makes CFD amazing as it covers whole lot of tradable instruments through 1000s of the markets around the world.

Is CFD a derivative?

Yes, CFDs are derivatives as their values is derived from the value of another instrument like stocks, currencies and share etc. Remember in CFD trading a trader take the position based on the change in price of an asset.

Can I trade CFDs without leverage?

There are very few CFD brokers that allow you to trade without any leverage. IGmarkets is one of them. Otherwise, all CFD brokers offer high leverage for CFDs. Remember the leverage offered by the broker might differ instrument to instrument. CFD brokers might offer high leverage for currencies while comparatively less leverage for stock and shares.

What is the difference between CFDs and shares?

This is another asked question what is the difference between the CFDs and shares. The important difference between CFDs and shares is that you are predicting the price of an asset instead of buying the ownership of the underlying asset, while on the other hand in shares or share trading we take ownership of the underlying asset.

Is CFD trading legal in Australia?

Yes, CFD trading is legal in Australia. Australia was the 2nd country after the UK to legalize CFDs and CFD trading. CFD brokers in Australia are usually legalized by ASIC (Australian Securities and Investment Commission.

Can you trade CFDs in Canada?

Yes, you can trade CFDs in Canada, but In order to trade CFDs in Canada, CFD broker must be registered with IIROC (Investment Industry Regulatory Organization of Canada).

What is Bitcoin CFD?

Bitcoin is a famous cryptocurrency. Nowadays many brokers around the world allow you trade Cryptos as CFD. Therefore, Bitcoin CFD is getting popular in this digital era like other CFD instruments.

Can I Use CFD to hedge my share positions?

Yes, you can use CFD to hedge your share positions. As CFDs allow you to open both buy and sell positions, therefore, if the price of a share is going against your predictions, you can take the opposite position to protect your balance from further loss.