Tag: CFD

A CFD (Contract for Difference) is a derivative financial instrument where two parties (a trader and a broker) agree to exchange the difference in the price of an asset between the time the position is opened and closed.

• You do NOT own the underlying asset (stock, gold, index, etc.).
• You are only trading price movements.

How CFD trading works (step by step)

Long vs Short (very important)

⚠️ This ability to profit in falling markets is a key feature of CFDs.

Leverage explained in depth

Leverage allows you to control a large position with a small amount of capital.

Leverage	Margin Required
1:10	10%
1:50	2%
1:100	1%
1:500	0.2%

⚠️ Risk of leverage

• A 1% price move with 1:100 leverage = 100% gain or loss
• Losses can exceed expectations if risk is unmanaged

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Costs in CFD trading

1️⃣ Spread

• Difference between Bid and Ask
• Paid when opening a trade

2️⃣ Commission

• Some brokers charge commission (usually on stocks)

3️⃣ Overnight / Swap fee

• Charged if you hold a position overnight
• Based on interest rate differentials

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CFD vs owning the asset

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Markets available via CFDs

CFDs allow access to global markets from one account:

• Forex – currencies
• Commodities – gold, oil, silver
• Indices – Nasdaq, Dow Jones
• Stocks – global equities
• Cryptocurrencies – price exposure only

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Are CFDs regulated?

• CFDs are legal and regulated in many jurisdictions
• Regulation depends on the broker’s license (FCA, ASIC, CySEC, etc.)
• Some countries restrict or ban retail CFD trading

👉 Broker selection is critical.

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Key advantages & disadvantages