Choosing a market for CFD trading
What markets can you trade with CFDs
Most providers offer CFDs on shares, indices, forex, commodities, ETFs and more. You can trade on just one of these or all of them – it’s completely up to you.
Shares are one of the most popular and well-known financial assets available. By buying a share, you buy a small part (or 'unit of ownership') of a company, meaning you also receive your own percentage of the company's profits in the form of dividends.
When you trade share CFDs, you’re speculating on whether the price of these shares – which reflects the value of the company as a whole – will rise or fall. As you don’t own the share itself, you will not receive any dividends directly. However, your provider will make an adjustment to your trade to replicate the effect of any dividend payments as closely as possible.
A stock index is essentially a number representing a group of shares from a particular exchange, area, region or sector. For example, the FTSE 100 is an index reflecting the value of the 100 largest companies listed on the London Stock Exchange (LSE).
Each index is expressed as a figure based on the collective value of those shares. When you spread bet, you're betting on this number rising or falling.
Did you know?
Forex - short for foreign exchange - is how individuals and businesses convert one currency to another. It's the largest, most frequently traded market in the world, and it's always quoted in pairs, eg GBP/USD (the British pound vs the US dollar) or EUR/JPY (the euro vs the Japanese yen).
Commodities are natural resources like gold, oil, wheat and lumber. They're traded on dedicated exchanges around the world, and their prices can vary dramatically because of supply and demand, the weather, natural disasters or geopolitical events.
Each commodity is priced uniquely - gold in dollars per troy ounces, for example, or oil in dollars per barrel - but in each case, you're simply betting on its whether its value will rise or fall.
Exchange traded funds (ETFs) are a way to track the performance of a selection of related assets, such as shares, commodities, bonds, currencies, etc. Traditionally they're traded on stock exchanges, but when you trade CFDs on them you're simply predicting whether their value will go up or down.
If you'd like to learn more about how all the underlying markets above work, you can go back to our 'Introducing the financial markets' course. Otherwise, stay with this course as we go on to look at each key market individually, and explain how CFDs works in relation to it.
- You can trade CFDs on a range of financial assets, or just stick to one
- If you trade share CFDs, you are taking a position on whether the value of a company will rise or fall – and you won’t receive dividends directly as you would in traditional trading
- Trading CFDs on indices means betting on the collective value of a group of shares
- You can also speculate on the value of currencies or commodities, and on ‘baskets’ of related shares in ETFs