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What Is CFD Trading & How Does It Work? 

What is CFD Trading?


CFD (Contract for Difference) trading is a financial tool that allows traders to speculate on the price changes of various assets—such as stocks, commodities, indices, forex, or cryptocurrencies—without actually owning the asset. In a CFD, the trader agrees to exchange the price difference of an asset from when the position is opened to when it is closed.

 

CFD trading allows traders to profit from both rising (buying long) and falling (selling short) markets. It is often used by traders for short-term strategies, such as day trading and swing trading, and provides leverage, enabling traders to manage larger positions with less capital.

How Does CFD Trading Work?

1. Selecting an Asset to Trade:
     You choose an asset (such as a stock, commodity, or currency pair) from the available options on your trading platform to begin trading.

2. Opening a Position:

  • Going Long (Buy): If you expect the asset’s price to rise, you enter a "long" position, meaning you're purchasing the asset at its current price.
  • Going Short (Sell): If you predict a price drop, you enter a "short" position, where you're selling the asset at the current price with the goal of buying it back later at a lower price.

     In both cases, you're not actually buying or selling the physical asset, but speculating on price movements.

3. Leverage:
     CFD trading usually involves leverage, enabling you to control a larger position with a smaller initial investment than would be necessary to own the asset outright. For instance, with 1:10 leverage, $1,000 in your account allows you to control $10,000 worth of an asset.
4. Leverage Impact:
     While leverage can amplify your profits, it also heightens the risk of significant losses. Small price fluctuations can lead to large gains or losses due to the effect of leverage.

5. Profit or Loss Calculation:
     Your profit or loss depends on the difference between the opening and closing prices of the asset:

  • If you went long (buy) and the price increases, you make a profit from the price difference.
  • If you went short (sell) and the price drops, you profit from the price decline.
  • If the market moves in the opposite direction, you incur a loss.

6. Closing the Position:
     To close a CFD position, you take the reverse action of your original trade:

  • If you went long (buy), you close the position by selling the asset at the current price.
  • If you went short (sell), you close it by buying back the asset at the current price.
7. Costs and Spreads:
     CFD brokers earn through the spread, which is the gap between the bid and ask prices. Additionally, traders may pay overnight (swap) fees for keeping positions open, particularly when using leverage.
8. No Ownership of the Asset:
     In CFD trading, you never actually own the underlying asset. Instead, you are speculating on its price movement. This makes CFD trading more flexible and requires less capital than traditional asset ownership.

Assets to Trade with CFDs


CFD trading allows you to speculate on the price movements of various assets across global markets. 

Here are the overview asset classes you can trade using CFDs:


1. Forex

  • Description: CFDs on forex track the performance of currency pairs in the foreign exchange market.
  • Examples:
    • Major Pairs: EUR/USD, AUD/USD
    • Minor and Exotic Pairs: USD/TRY, EUR/JPY
  • Benefits: Allows you to trade forex with leverage, profiting from both rising and falling currency exchange rates.

2. Shares

  • Description: Share CFDs allow you to trade stocks of major global companies without owning the actual shares.
  • Examples:
    • Apple, Tesla, Amazon, Netflix, Baidu
  • Benefits: Share CFDs follow the spot market, offering easier entry compared to futures or options, making it simpler for traders to engage in company stock trading.

3. Metals

  • Description: CFDs on metals provide access to precious metal markets, a popular choice for hedging against economic uncertainty or inflation.
  • Examples:
    • Gold, Silver
  • Benefits: Offers short-term trading opportunities and hedging benefits, particularly in volatile markets or inflationary environments.

4. Energies

  • Description: CFDs on energies allow you to trade commodities like crude oil, which is heavily influenced by geopolitical events and supply/demand dynamics.
  • Examples:
    • Crude Oil (WTI, Brent)
  • Benefits: Provides exposure to the volatile energy market, where both technical and fundamental analysis can be applied.

5. Cryptocurrencies

  • Description: Crypto CFDs let you speculate on digital currencies' price movements without owning the actual cryptocurrencies.
  • Examples:
    • Bitcoin, Ethereum, Ripple
  • Benefits: Trade cryptocurrencies with leverage and without the need to set up wallets or deal with the complexities of owning digital currencies.

6. Indices

  • Description: Index CFDs track the performance of stock market indices, representing the overall performance of a group of stocks from a particular market.
  • Examples:
    • S&P 500, Dow Jones (DJIA), Nikkei 225, S&P/ASX 200
  • Benefits: Allows traders to gain broad exposure to an entire market or sector through a single trade, rather than picking individual stocks.
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MEXN POTAL PLATFORM

RISK DISCLOSURE: Contracts for Difference (“CFDs”) are leveraged products and carry a high level of risk to your capital as prices may move rapidly against you. Losses can exceed your deposits and you may be required to make further payments. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice.


※ We do not provide services to residents of certain regions such as the United States, Canada, Israel and Iran.New Zealand, Australia, and North Korea, officially the Democratic People’s Republic of Korea or any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

Company address : RM 1506, 15/F GOLDEN GATE COMM BLDG, 136-138 AUSTIN RD, TST, KLN HONG KONG

Registration number : 2475730│Tel : +852 6653 2060│ Email : master@potal-platform.com

Copyright © 2020 "POTAL PLATFORM". All Right Reserved

MEXN POTAL PLATFORM 

RISK DISCLOSURE: Contracts for Difference (“CFDs”) are leveraged products and carry a high level of risk to your capital as prices may move rapidly against you. Losses can exceed your deposits and you may be required to make further payments. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice. 

※ We do not provide services to residents of certain regions such as the United States, Canada, Israel and Iran.New Zealand, Australia, and North Korea, officially the Democratic People’s Republic of Korea or any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. 


Company address : RM 1506, 15/F GOLDEN GATE COMM BLDG, 136-138 AUSTIN RD, TST, KLN HONG KONG Registration number : 2475730│Tel : +852 6653 2060│ Email : support@mex-n.com Copyright © 2020 "MEXN POTAL PLATFORM". All Right Reserved