CFD – Contract for Difference
The future of online trading and investment
Contracts for difference (CFDs) are simple and highly flexible financial instrument designed to give independent investors access to a wide range of global assets, including stocks, commodities, forex and indices positions, with no requirement to buy any of the underlying assets.
Opteck traders can enter into leveraged contracts on over 1,000 of the world’s best-known assets by opening a position at a specific price. When the position is subsequently closed, the difference between the opening and closing prices constitutes the trader’s profits. CFDs can offer potentially high returns on investment, but you can also lose all or part of your invested funds.
CFD Online - Trade Global Assets the Easy Way
Newcomers to CFD trading are sometimes confused by the term ‘contract for difference’. They wonder if they have to negotiate or sign an actual contract with a broker in order to open a particular trade. Fortunately, CFD trading is very simple and convenient; the name contract for difference is derived from the way that profits are calculated on each successful trade.
Contract for Difference – A Quick Explanation
A contract for difference – or CFD - is a financial instrument (a form of trade on a particular asset). You can open an unlimited number of CFDs using the trading platform, without signing any extra agreements. The whole process takes just seconds and involves a few clicks of the mouse.
When you trade a CFD online there is no need to actually buy the asset that you are trading. You are trading on the price movement of the asset.
- Choose an asset. This could be a forex currency pair, commodity, stock or share, or index.
- Decide how much to invest on the trade and whether to use leverage.
- Open a BUY position on a desired financial asset when its value is low.
- Close the trade when its value is high - and vice versa on a SELL position.
The difference in the two values (initial and final) is your profit and it is paid straight into your trading account. You can either re-invest your profits or withdraw them.
The financial markets are inherently volatile and can respond to global events in just seconds. This creates enormous opportunities to potentially profit from CFD trading, but also creates clear risks.
Successful traders practice risk management in an attempt to eliminate as many risks as possible from the investment process. Effective risk management begins with effective fundamental analysis and a clear understanding of the current economic and political situation. The Opteck Daily report keeps traders abreast of the global situation and helps them to prepare for any changes to the markets.
The Opteck trading platform also contains a number of other tools for risk management including:
Set your trading account to automatically close any trade that incurs unacceptable losses. The stop loss tool gives you the freedom to let trades run without continually monitoring them.
Set your trading account to automatically close any trade that has achieved your desired level of profit. This means that your profits have been safeguarded should the asset price subsequently fall. The take profit tool gives you the freedom to let trades run without continually monitoring them.
Use the execution type tools to automatically open trades only when the market conditions meet your terms. This is another "set and forget" tool that makes your trading account do the work for you.
These risk management tools are explained in detail in the Opteck education center which is free to registered traders.
Leverage is a tool that will already be familiar to experienced forex traders. The basic principle of leverage is that it allows you to open CFD positions using Opteck’s money to boost your own investment by up to x200. This allows the possibility of achieving higher profits.
Using leverage can also increase your potential losses. We strongly recommend using the Opteck education center to learn how to use leverage within the context of proper risk management.
The education center is free to registered traders.
If you open leveraged positions you will be required to keep a certain reserve of money in your trading account to cover your leveraged trade. This is known as a margin. The size of your margin will depend on the size of your open positions and their performance. If your margin begins to approach the minimum level you will receive a margin call. This is a notification advising you to either close some open positions or add funds to your trading account.
Margin and margin calls are explained in greater detail in the Opteck education center.
The education center is free to registered traders.
I am a Forex Trader – Can I Profit with CFDs?
Forex trading has evolved massively over the last few years and CFD online trading is now probably the best way for independent traders to profit from forex. The high-tech Opteck trading platform allows CFD forex trading with relatively small initial investments by offering up to x200 leverage. The trading platform provides all the trading tools that are necessary for any skilled forex trader; including stop loss and take profit. CFDs give you fast and highly transparent access to global forex trading. All of the world’s major currency pairs are available as CFDs; and there is also an interesting selection of less well- known currencies.
CFD Trading – Key points
- CFD online trading is simple and convenient
- You do not have to buy any asset in order to trade it as a CFD
- It takes just seconds to open – or close – any CFD trade
- Forex trading may be highly profitable with CFDs
- Opteck offers a full range of risk management tools
- Increase your investments with up to x200 leverage
- No commissions, hidden fees or deductions
Should I Trade CFDs Online?
CFDs are a very flexible financial instrument. They are simple enough to be easily mastered by absolute beginners to online trading, but sophisticated enough to offer an experienced forex trader the chance to make a high number of leveraged trades. The Opteck trading platform is designed to be accessible to traders of all experience levels and immediately connects you to the world’s most volatile markets.
If you want to become an independent investor, and take full control over your own portfolio, CFDs could be for you. CFD trading allows a high level of flexibility and risk management, and the Opteck Academy will help you to develop a detailed knowledge of the financial markets and implement professional trading strategies.