CFD contracts are nothing but a contract between the buyer and the seller to transfer the difference at the time of the deal (opening the order) and its value at the end of the contract, that is, closing the Forex order.
Trading CFD on shares
Suppose a trader bought 20 Facebook shares at a price of 127.85 USD per share, and after a while sold it at a price of 129.85 USD. It turns out that the buyer company undertakes to pay the price difference to the trader according to the formula 20 (shares) x 2 (the price difference at the time of purchase and sale) = 40 US dollars. If the value of the stock for any reason falls, then the financial obligation to pay this difference will be borne by the Forex trader. Now you understand that CFD contracts are the difference in the price, at which a certain exchange asset was bought and sold.
Benefits of CFD Trading include:
- Favorable collateral requirements. The margin of the real value of the contract is 10%.
- Ubiquity and accessibility. You can trade assets from anywhere in the world as long as there is the internet.
- Low Forex fee. The amount of the fee for the operation ranges from 0.05%.
- Guarantees for the execution of orders. You always have an opening or closing orders, regardless of what price reached a particular asset.
- The possibility of diversification. Arising risks can always be diversified due to a wide range of financial assets.
- Providing leverage. CFD contracts provide the possibility of obtaining a leverage or, as it is also called, a loan. A trader can with the help of leverage count on the execution of transactions, which in amounts significantly exceed the trader’s security deposit. However, for this advantage, you will have to pay a certain percentage. Thus, a certain fee will be charged from the client’s account with each new trading session. This is a kind of payment to a Forex broker for expenses aimed at lending to its customers.
These AvaTrade reviews will help you choose the right broker for your successful transactions.