A Guide to Trading on CFDs: The Basics of Contract for Difference
Contracts for difference (CFDs) are a form of derivative that allows traders to speculate on the price movement of an asset. They can be traded with leverage, making them a very risky instrument. To trade Contract for Difference responsibly, it is necessary to understand exactly how they work and your risks. The following guide will provide some basic information about CFD trading so you can make an educated decision before starting your investment journey.
How does it work?
CFDs are based on the principle of margin trading. This means that you only need to deposit a small percentage of the total trade value to open a position. The broker provides the remaining funds in the form of a loan. This can be a risky proposition, as it means you could lose more money than you have invested.
CFD trading is based on the principle of leverage, which means that you can invest a small amount and still have significant exposure to risk.
What are the risks?
CFDs are a high-risk investment and should only be used by experienced traders who understand the risks of margin trading.
In conclusion, CFDs are a high-risk investment instrument that experienced traders should only trade. Before trading CFDs, make sure you understand the risks involved and how the product works.