CFD trading is the buying and selling of CFDs, or contracts for difference, a way of speculating on financial markets that doesn’t require the buying and selling of any underlying assets.
You don’t have to use a CFD to mimic a standard trade – you can also open a CFD position that will increase in value as the underlying market decreases in price. This is referred to as selling or going short, as opposed to buying or going long.
If you think Apple shares are going to fall in price, for example, you could sell a share CFD in the company. You’ll still exchange the difference in price between when your position is opened and when it is closed, but will earn a profit if the shares drop in price and a loss if they increase in price.
With both long and short trades, profits and losses will be realised once the position is closed.
Beyond the ability to go short and make use of leverage, there are several key reasons why traders use CFDs:
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