Trading on the Forex market is now of interest to many citizens of our country, because this is where huge capital is created in the shortest possible time. However, the foreign exchange market has many nuances that are independent of the trader, which often interfere with achieving results, and therefore, many exchange players choose another niche for themselves, namely trading in cfd contracts, which we will talk about today.
What is CFD trading
CFD trading has much in common with standard, classic trading on currency pairs, but differs in that stocks, indices, commodities and other stock market commodities are used as trading assets. The trader’s task remains the same – to get ahead of the trend in which a particular exchange instrument will move, and open a position to buy or sell. That is, if an exchange player believes that the price of an instrument will rise, then he opens a deal to buy it with a broker; if it falls, he opens a deal to sell it. In order to fully understand the work scheme, we propose to consider the work of a trader using a direct example.
Let’s look at how CFD trading works using stocks as an example.
To explain as accurately as possible how CFD trading works, we will explain everything using the example of an asset such as CD project shares. If a trader believes that in the near future the value of a given asset will decrease, he opens a position to sell the instrument. At the same time, actual ownership of shares is not necessary, because a CFD is a contract for difference in prices, and not the asset itself. Thus, if the value of the instrument decreases, the trader will receive a profit commensurate with the price difference and the volume of the established lot. If the stock price rises after opening a position, the speculator will receive a loss. Also, there are forward contracts, which indicate a deadline for the price movement.
Conclusions
CDF trading has much in common with regular stock speculation, and the main difference lies in the name of the assets available for trading. However, it is often easier for certain traders to use this particular instrument, since it is easier to analyze and has a greater dependence on fundamental factors than currencies. But, at the same time, it is worth remembering that absolutely every market does not tolerate intuitive trading, and trading without preparation can lead to financial losses in 90% of cases. Therefore, we recommend studying this specialty, and only then starting to fully trade.
