About trading CFDs

Twenty years ago only big institutions were able to trade CFDs, whereas today everyone can choose to trade CFDs.

What are CFDs?
Contract For Difference, or short CFD, is a deal between the broker and the investor. The contract is about the difference between the opening value and the closing value. Stocks, bonds, currencies can be CFDs. The stock price accords to the CFDs value.

How does CFD trading work?
Contracts for differences allow investors to take long or short positions, they have no fixed expiry date or contract size unlike futures contracts. Trades are conducted on a margined basis with margins. The CFDs investors pay only part of the stock value as so called margin, a deposit. The profit or loss is calculated with the according leverage. The leverage is a result of the amount of the margin and can be up to 100 high. The graph on the left shows the consequences for the win with different leverages.

The speciality of CFDs
• No big sums needed for margins
• Long & short trading possible
• CFD prices according to stock prices
• Leverage high is a result of the margin
• CFDs are no futures (extra time can be bought, when a positive stock price is expected)
• The prices for CFDs are transparent, they are derived from the stock prices
• High gaining with little capital costs
• Stop loss levels are possible

Better beware of CFDs
• High losses are possible
• Not recommendable for newcomers
• Own CFD account is needed
• CFD brokers get a provision
• If CFDs are traded longer than a day, interests are paid
• Not all the brokers trade CFDs

For interested investors who want to invest in CFDs, there is a principal guideline: Never invest more than 25% of your available money in CFDs, as a total ruin is possible even with a relatively small leverage of 14. The Investor’s Coach can be helpful to know where to invest, and when it is the right time.