CFD stands for Contracts for Difference. It is simply margined trading. When the position is closed, you pay or receive the profit or loss made
on the trade.
A CFD gives you all the benefits of the underlying cash equity whilst avoiding many of the typical costs associated with dealing in the physical underlying product. CFD trading allows you to gain cost-effective, flexible and geared exposure to financial products globally.
As it is a margined product you only have to put up a fraction of the actual value of the trade you wish to do. We have introduced CFDs on indices as well as Forex onto the MetaTrader 4 platform. These can be trialled on the demo platform and it is advised that you practice trading them first if you are not familiar with the product.
People trade in CFDs for a variety of reasons:
Some trade to speculate with a view to profiting from fluctuations in the price or value of the underlying instrument or security. For example, CFD traders may be short-term investors who are looking to profit from intra-day and overnight movements in the underlying market.
CFD traders may not wish to sell or purchase the underlying products themselves, but may instead be looking to trade on market movements in the products concerned.
Others trade CFDs to hedge their exposures to the underlying instrument. For example, CFDs can be used as a risk management tool to enable those with existing holdings of underlying shares to lock in an effective sale price for the products concerned by taking a "short" CFD position. If the price of the underlying products the investor holds falls, the short CFD positions will wholly or partly offset the losses incurred on the physical holdings.
CFDs also allow people to trade on a leveraged basis. You are able to outlay a relatively small amount (in the form of Initial Margin) to secure an exposure to the underlying product/instrument.