What is a CFD?

CFD stands for "Contract for Difference" and refers to an agreement to exchange the difference between the opening and closing price of the position. CFDs are derivative financial instruments. They allow the investor to speculate on a large range of different underlying stocks without actually having to own them. Prices are quoted 1:1, which means that CFDs offer optimal price transparency. Buying (going long) or selling (going short) both offer opportunities for profit. With a long position the investor profits from increasing prices, whereas with a short position the investor profits from falling quotes. CFDs originate in the UK, where they were developed as a method of avoiding stamp duty.

To trade CFDs a security deposit is required - the so called margin - which must be deposited for each transaction. The margin for CFDs usually lies between 3% and 50%. As the investor only has to make available a (small) proportion of the actual volume of the transaction, this creates the so-called leverage effect. For example, with leverage of 20:1 an investor can speculate with 100,000 Euros and must deposit only 5,000 Euros margin.
 

How leverage works

Advantages

CFDs offer significant advantages over classic stock trading:

• The investor can not only go long, but also go short and successfully speculate on falling markets
• Margin trading offers the possibility to speculate with a high multiple of your actual capital and therefore offers significantly higher chances
• By simultaneously buying and selling two related stocks, for example from the automotive industry, the investor can bet on relative outperformance
• CFDs reflect the changes in the rate of the underlying to 100%
• No stock exchange charges or external transaction fees

Software for online trading with forex, CFDs and commodities

To trade forex, CFDs and commodities with the FXdirekt Bank it is necessary to install the FEXtrader Pro® trading software. The software provides the trading interface. Further details about FEXtrader Pro®