CFD Trading - Contracts For Difference
CFDs or Contracts For Difference are a way for traders to speculate on the price of various asset classes, without the need to actually own the underlying asset. The trade is essentially an agreement between two parties to exchange the difference in value between the opening and closing prices of a contract for a particular asset.
The two parties in this case are you as a trader and us, EuropeFX as your broker.
The Opening Price is the price at the moment the trade is opened, and the Closing Price is the price at which the trade is closed. The difference between these two prices is the actual profit (or loss) on the trade.
A CFD trade doesn’t involve owning the underlying asset,
despite the price of the CFD being linked to the particular asset.
CFD trades don’t have an expiry date and can be rolled over the end of each trading day if you so wish and can effectively remain open indefinitely, provided you have sufficient margin in your account to maintain the trade of course.
Enter into a Buy side CFD and the price rises, then at closing your trade is profitable. If the price falls, then at closing your trade has made a loss. Like all our tradable assets, positions on CFDs can be opened as Buys or Long (speculating the price will rise) and Sells or Short (speculating the price will fall).
CFDs are leveraged products and the leverage allows for bigger trades to be taken with the equivalent increased profitability of successful trades. However, leverage also magnifies losses by the same ratio on losing trades. Leverage is a tool and must be used with care and always with an appropriate risk management strategy. On EuropeFX, leverage can be as high as 1:500.
The contract sizes for CFDs are fixed. CFDs on shares for example, are opened at the value equivalent to 100 shares of the company in question. A full contract CFD on Google shares (GOOGL) would be for the value of 100 shares in the company. At the current price of USD 1,106.60 per share, that would make a full CFD in Google worth $110,660.
Entering into a full CFD on Google shares however at a leverage of say 1:50, would only require an opening margin of $2,213.20 (1/50th of the face value since the leverage in use is 1:50).
If the closing price rises above the contract opening of $1,106.60 (On a Buy trade) then the trade is profitable. If the closing price falls below $1,106.60, the trade will result in a loss.
CFDs at EuropeFX are available on Indices and Commodities.