CFD (short for “Contract for Difference”) trading is a method that enables individuals to trade and invest easily in any asset by engaging in a contract between themselves and a broker, instead of opening a position directly on a certain market.
The trader and the broker agree between themselves to replicate market conditions and settle the difference amongst themselves when the position closes. CFD trading offers many advantages that don’t exist with direct trading, such as access to overseas markets, leveraged trading, short (SELL) positions for assets that traditionally do not offer that option and more.
Can I only profit when prices are going up?
No. One of the big advantages of investing in CFDs, rather than in markets like commodities or stocks, is that you can profit from falling markets as well. Remember, a CFD is a Contract For Difference, but that difference can go in any direction. So you can invest in the possibility of prices going up (a “buy” or “long” order) or down (a “sell” or “short” order), according to what you think is likely to happen.
Is the minimum investment in a stock equal to its market price?
No. CFDs make it possible to invest smaller amounts in the markets of your choice. With CFDs you don’t actually have to purchase or own an instrument, so you are not constricted by the high prices of certain stocks or commodities. So even if the price of Google’s stock, for example, is $1,000, on Royal Broker you can invest in Google with as little as $50 (using the leverage of 1:10) and own $500 worth of Google shares. That’s one of the greatest advantages of using CFDs.
Are there assets unique to CFDs?
Yes. Indices such as the DJ30 or the SPX500, for example, are not actual physical assets – you can’t own a piece of an index. However, with CFDs, you can speculate on index performances, which enables you to invest not just in one stock but whole sectors of national economies.
Are CFDs riskier than traditional market investments?
No. Any financial investment involves risk, and CFDs are no different. CFDs only become riskier if you’re using leverage, thereby increasing your market exposure. On Royal Broker