Contract for Difference (CFD) is an over-the-counter trading instrument that allows traders to take advantage of leverage in the spot market to trade on indices and commodity markets without actually buying the underlying securities.
CFD is essentially a financial derivative product in which both parties (brokers and customers) trade at the price difference between the opening and closing prices of the products covered by the CFD at the end of the contract.
CFD trading allows you to profit from the equity (such as dividends, price, etc.), but you do not actually hold the stock. CFDs are over-the-counter transactions and are not traded on exchanges.
CFD is an ideal trading tool for short-term technical trading and hedging of spot market positions, and it also attracts long-term investors.
How the CFD Market Works
CFD is an open contract. If you do not close your position on the trading day, you will trade to the next trading day. At this point, pay interest or get interest (depending on whether you are holding more than one single or empty one). You can hold your open positions indefinitely as long as you maintain sufficient margin available.
Margin and CFD Markets
CFD is a very popular margin product. You only need to trade a small amount of the total amount (20% for CFD, 7.5% for ETFs), which allows you to trade with the actual stock trades in the market. Greater potential investment. Thus, for example, a $ 10,000 equity transaction in a CFD transaction costs a maximum of $ 2,000. If the $ 500 profit from the deal is only 5% for full stock trading, the return on CFD trading is as high as 25%. But the loss is also amplified.
Because the CFD does not require the full amount of funds to trade, you need to pay for the long credit costs, while the short charge credit costs.
In theory, the financial product (also known as the basic product) can now be any investment in the world there are varieties, as long as it exists in the future. Specifically, it can be a variety of stocks in the transaction, the stock market index, futures, bonds, foreign exchange and even interest rates and so on. The contract only binds to the future price of the relevant financial product and does not involve the entity or ownership of the relevant financial product.
* Please Note: As with currency pairing swaps, when commodity or indices positions are held by clients overnight there is a rate charged as follows from the 21st of May 2013.
Long: Long: Index value * Number of CFDs * (relevant interbank rate + 2.5%) * (Actual Number of days/360 or Actual Number of days/365)
Short: Short: Index value * Number of CFDs * (relevant interbank rate - 2%) * (Actual Number of days/360 or Actual Number of days/365)
There will be a commission levied against each CFD trade equivalent to 0.0065% of the the nominal trade value subject to a minimum fee.