What are CFDs?

One of the great things about Forex brokers is that they will quite often offer other markets beyond currencies. They do this by offering something known as a CFD, or “Contract for Difference.” This is a flexible contract in which you are placing a trade in anticipation of prices moving in an underlying instrument. However, unlike other financial instruments, you don’t actually own the underlying asset.

For example, you may wish to trade the wheat market, which is typically traded in the futures market. The biggest issue that many retail traders face is that it takes a significant amount of margin to trade that futures contract. Beyond that, futures contracts have a set size, so if you wish to trade an odd amount that is not part of the standard futures contract, you can run into serious issues. However, with the CFD market, you can trade wheat in as little or as large of the position as you choose, while not worrying about how many bushels the standard contract is.

CFDs are found around the world and covering a plethora of instruments. They can be commodities, stocks, bonds, and indices. For example, if you choose to trade the DAX, you can place a trade with your broker, close out the trade when you are done, and you either keep the difference between the opening value in the closing value, or have that difference subtracted from your account. This offers a very convenient way to trade other markets and can be a great way to play the global correlations that we see these days.

The most common CFD contracts that you will see add brokerage firms will be for gold, silver, and oil. However, some brokerage firms have hundreds of CFD markets that are available. CFD trading offers an immense amount of flexibility, as well as convenience, giving you the opportunity to trade the world from one platform. However, CFD regulation varies depending on the country you are in, so make sure to check your local regulations. For example, CFD trading is not available in the United States. However, it is very popular around the world.

What are CFDs