CFD (Contract for difference) Trading with ForexTB

2 February, 2021

A CFD (Contract for difference), offers traders the opportunity to speculate on, and possibly earn a profit from the price movement, without actually physically owning the underlying asset. By using a CFD (basically a contract between a buyer and seller that specifies a certain purchase price), it allows for profits or losses based, on the change in the price of the underlying asset during a specified time frame. CFDs can be traded in all the major markets, Forex, Stocks, Indices, Commodities and Cryptocurrencies.

How to trade CFDs?

When you choose to trade CFDs, you are predicting the movements of a certain asset in the market. If you speculate that the asset is going to rise, you would buy, and if you predict a fall in value, you would sell the asset. As you do not own the asset itself, when you invest in a CFD, you are investing in the chance to earn from the movement of the asset.

When trading CFDs, it is important to always remember that you can lose your investment if the asset’s price should move in a direction opposite to your position.

Here are some examples:

Example 1: You’ve read reports that indicate that the Google stock will rise in the next few days. You enter our trading platform and watch its behaviour on our live, real-time graph and decide you agree. However, if the stock drops, you would realise a loss.

Do you Buy or Sell?

In this case, you have predicted that the price of the Google stock will rise and you would click to buy. If the stock does in fact rise, you would earn a profit from the difference in price. However, if the stock drops, you would realise a loss.

Example 2: You were listening to your favourite financial podcast and heard that an important announcement in the U.S. is about to be announced which could cause the price of the S&P 500 index to plummet. After doing your own research, checking graphs and behaviours, you agree that it will drop.

Do you Buy or Sell?

In this case, you would click to sell, as you speculated that the price would drop. If the price of the index indeed plummets, you would earn a profit from the price movement. However, if the stock drops, you would realise a loss.

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