CFD – the contract for the price difference: what are the advantages

Ted Capwell

What is CFD?

CFD (English Contract For Difference, CFD) is a contract for the difference in prices of various underlying assets. Usually it can be assets that are traded on different markets. When this agreement is drawn up, there is a transfer from one party to the other side of the difference between the price of assets at the time of the conclusion of the contract and the price of assets at the time of the termination of the contract. But this agreement does not provide for the transfer of ownership of these assets. Most often, the parties do not prescribe the validity term and this agreement may cease to be effective if one of the parties that has such a right will demand the termination of this contract.

CFD - contract on the price difference

Approximate years of appearance in the market of CFD-contracts were not so far 80th. Then they were drawn up between the parties only as a difference in the share price. Now these contracts are formalized for most of the exchange components. Before, when there was no CFD yet, only those who could afford to invest several hundred thousand dollars could use the exchange instruments and have the right to trade with them. With the advent of CFD, trading on international trade exchanges became open to the masses. Private individuals with different levels of personal capital could be involved in transactions. To start participating in stock exchange operations it was necessary only to conclude a contract, while having only a few thousand instead of hundreds of thousands.


The main advantages of CFDs

When operating a CFD, you can:

– Receive income not only with the growth of prices, but also when the price falls.
– Make a choice from a large number of markets and their tools.
– Getting income from all international exchange markets is not superfluous for stock and raw materials.
– If prices change in the future – insure differences in price, to prevent significant monetary losses.
– On shares receive dividends (if under the CFD contract the main assets are provided for shares).

Why is CFD trading so popular?

A wide number of individuals prefer to trade contracts for the difference. This tool of all the largest stock exchanges in the world, not only the stock markets, but also the raw materials, gained its popularity because of its simplicity and accessibility not only for beginners, but for professionals. This tool provides operations with any assets and can be used on any sites. Earlier it was necessary to invest considerable capital to buy expensive assets. With the advent of CFD, it’s all behind. Now that you have invested relatively minimal amounts, you can start making significant profits only on the difference in the asset price at the time the contract was concluded with the asset price at the time it was completed.

Advantages of using CFDs

– Lack of a large deposit. The approximate amount of collateral required for many positions ranges from 4% -11% of the total value of the main contract. For comparison, this is much less commission, which private individuals receive on the exchange trades, as much as 10-20 times!
– Do not need to wait for you to be assured by warrants at the place of trading.
– A lot of brokerage companies that do not actually do anything for their customers, take on a significant part of the problems that may be associated with this.
– Guaranteed use of stop orders, if the market has changed a little.
– The requirements for the size of the contract are extremely low.
– Extremely minimal deposit requirements and significant leverage. If we talk about traditional trading activities on the exchanges, then we can see very strict conditions for the initial capital, and the leverage is minimal compared to the minimum. And of course, that the bidder must pay a large commission.
– Using CFD gives the opportunity to participate in trading in all markets and exchanges. Choosing among the huge list of tools that you can use or assets on the differences between prices that you can earn.
– You do not need to open multiple accounts for several companies.
– Absolutely fair competition in the markets where tenders are conducted.


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