Basic terms that are used in CFDs

CFD stands for Contract for Difference, contracts between a trader and the financial services platform where he holds the account. The meaning of CFDs, however, does not explain their real nature. To understand the issue better and answer the question related to what are CFDs, a specification must be added. They are, in fact, derivatives. Therefore, financial instruments replicate an underlying price without implying its direct possession.


What does it mean? In practice, the CFD of shares does not presuppose the direct purchase of securities but a forecast of their price. The very particular methods of CFD trading are made possible because this kind of trading takes place on OTC (Over the Counter) markets, i.e., unregulated. Consequently, they do not provide for a rigid regulatory cage, as in the case of regulated ones, allowing taking advantage of some advantages, which we will see below.   


Advantages of using CFDs

Best Cfd Traders instruments consist of, which are increasingly appreciated by investors from all over the world. You can say that the CFD trader can rely in particular on the following:

  • Lighter costs. Since there is no real asset exchange, no commissions are paid for opening or closing the position. They are present in case you intend to keep it open during the night, but usually, the CFD trader operates for a short period;
  • Ability to use leverage and open short positions. In this way, it is possible to overcome the lack of huge resources and, in any case, aim for significant amounts;
  • Earning opportunities not only on an appreciation of the asset on which the contract was opened but also from its decline. A notable difference with what happens when you buy an asset directly, for example, a stock;
  • Possibility to close the contract at any time, thanks to the liquidity of the reference market. It is possible to take profit in case of success of the operation or to prevent further losses in the opposite case.





 On which underlying is it possible to invest in CFDs?

  • Shares are present on all major global financial markets;
  • On the main Forex currencies with Forex Trading, starting naturally from the money;
  • Indices, with the choice of ETFs (Exchanged Traded Fund) on any price list;
  • Raw materials, both energy and non, including food (wheat, cocoa, soy, cotton, and sugar;
  • Bonds issued by both state and corporate entities through Metatrader 4 Free Download;
  • Cryptocurrencies, starting of course with Bitcoin and Ethereum CFD trading.


How do you pick the best broker for CFD investments?

Before starting CFD trading, the first step to be taken consists of precisely choosing the broker to do it with. Forex Mt4 Download must begin from a premise to make a careful choice: the CFD platform must be equipped with a regular permit to offer financial services issued by a market supervisory body.


If a CFD platform does not have such a permit, it must be discarded without delay. Regardless of whether his intentions are fraudulent or not. The reason is to be found in the fact that a regulated broker is required to join the ICF (Investor Compensation Fund). That is to the insolvency risk compensation fund, which provides coverage of up to 20 thousand in a case of this kind.

MT4 Trading Platform should also remember that CFD trading brokers with a regular license are obliged to comply with regulations and the MiFID directive, acronym for Markets in Financial instruments Directive.