CFD (Contract for Difference) is a relatively new financial product. CFDs were launched in England in the early 1990s, and a few years later CFDs also opened up to private investors and quickly became popular among traders on the London Stock Exchange (LSE). The whole world is open to those who want to invest in CFDs. Stocks, agricultural commodities, currencies, cryptocurrencies and indices are available as CFDs.
CFD trading makes it possible to make money regardless of whether the market value is rising or falling. An agreement is made between you and the broker. By choosing a long location you think prices will go up and by choosing a short location you will think prices will go down. You can make money on both ups and downs. You decide in which financial instrument you want to invest and how long you want to keep it. The higher the risk, the greater are the chances of making money, but as with any financial transaction, there is also a risk that you will lose the capital you have invested. Remember that leverage is used in CFD trading. One way to protect yourself from excessive losses is to use a stop-loss.
Important: As an investor, you do not own the underlying benefits but follow the development of the price.
The most important thing to trade successfully is that you prepare well. Here are some things to keep in mind.
Remember that CFDs are traded with leverage and losses can be large and you may lose the capital you have invested. CFD trading is not suitable for all investors.
Today, leverage is used e.g. in stock, currency, commodity, index and bond trading. Brokers and investors use leverage to increase the capital. Companies offer a variety of leverages that range from 1:1 upwards, depending on the investor’s preference. Leverage is an aid to investors with relatively small initial capital to enter the market. Leverage increases profit, but it is also important to remember that leverage increases loss. The higher the leverage, the greater the risks.
You place an order for a specific value and the computer activates your position when the desired position occurs.
In order to protect your invested capital from loss, you can use a stop-loss order that closes your position when the value of the investment is at a certain level. You specify the loss stop level in advance.
You specify the cut-off point in advance. When you reach the specified value, the order automatically closes the position. Assignment reduces risks.