CFD is an acronym that stands for contract for difference. This is
essentially a contract between two parties, the buyer and the seller.
According to the details of the CFD, the buyer agrees to pay the seller
the difference that exists between an asset's current value and its
value at the time the contract is signed. It is worth noting that in
instances where the value of the asset is negative, it is the seller who
pays the buyer. The reason why individuals are opting for a CFD trading
has to do with the fact that it allows for greater flexibility.
Compared to the trading in normal shares, with a CFD, you are at liberty
to go either long or short in forex, shares as well as other financial
markets.
A CFD is usually traded with market makers or brokers known as providers over the counter. It is the job of the provider to define the terms of the contract, the rates of the margin as well as the assets to be traded in. The two models used by the providers when trading in contracts for difference are direct market access and market maker.
A contract for difference is traded between a CFD provider and individual traders. Because there are no standard contracts terms in a CFD, the CFD trader is free to specify his/her own. If you are looking to start a CFD, the first thing you need to do is contact a CFD provider and make an opening trade on a specific asset. By so doing, you will be doing what is referred to as creating a position on the asset. Since no expiry dates exists, the position that you make will only be closed after the CFD provider completes a second reverse trade. At this point, the difference that exists between the opening and closing trade is then paid either as a profit or a loss. The provider of the contract for difference may decide to make several charges as part of the open position or trading. These could include overnight financing, bid-offer spread or commissions.
As has already been stated, a CFD does not have an expiry date. However, if a position is left open overnight, it is automatically rolled over. What this means is that financial charges are calculated on any profit or loss that is made and debited or credited into the client's account. If you are not conversant with a contract for difference, you ought to know that it is traded on a margin. As a trader it is imperative that you always maintain the minimum margin provided.
One thing you will notice when contract for difference trading is the margin, profit or loss requirements are calculated in real time and displayed on a screen for the trader to see. Margin calls are made whenever the amount of cash that is deposited with a CFD broker is below the minimum margin level. The trader must quickly cover the margin or he/she risks having the provider of the contract for agreement, liquidate his/her position
A CFD is usually traded with market makers or brokers known as providers over the counter. It is the job of the provider to define the terms of the contract, the rates of the margin as well as the assets to be traded in. The two models used by the providers when trading in contracts for difference are direct market access and market maker.
A contract for difference is traded between a CFD provider and individual traders. Because there are no standard contracts terms in a CFD, the CFD trader is free to specify his/her own. If you are looking to start a CFD, the first thing you need to do is contact a CFD provider and make an opening trade on a specific asset. By so doing, you will be doing what is referred to as creating a position on the asset. Since no expiry dates exists, the position that you make will only be closed after the CFD provider completes a second reverse trade. At this point, the difference that exists between the opening and closing trade is then paid either as a profit or a loss. The provider of the contract for difference may decide to make several charges as part of the open position or trading. These could include overnight financing, bid-offer spread or commissions.
As has already been stated, a CFD does not have an expiry date. However, if a position is left open overnight, it is automatically rolled over. What this means is that financial charges are calculated on any profit or loss that is made and debited or credited into the client's account. If you are not conversant with a contract for difference, you ought to know that it is traded on a margin. As a trader it is imperative that you always maintain the minimum margin provided.
One thing you will notice when contract for difference trading is the margin, profit or loss requirements are calculated in real time and displayed on a screen for the trader to see. Margin calls are made whenever the amount of cash that is deposited with a CFD broker is below the minimum margin level. The trader must quickly cover the margin or he/she risks having the provider of the contract for agreement, liquidate his/her position
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