What is CFD Trading?
A contract for differences, also commonly referred to as a CFD, is an agreement to exchange the difference in value of a given asset (shares, stocks indices and commodity futures) between the opening time of the contract and the closing time of the contract. It is a derivative that allows traders to speculate on the price of underlying asset. A CFD on a stock index such as the USA 100 gives an idea of the spot price of a market index in its totality. When trading CFD contracts on stock indices, you do not actually own the underlying product, you are just speculating on its future direction. CFD’s on stock indices are traded the same way as currency contracts. The main characteristic of CFD contracts is the leverage power associated to them. Indeed, CFDs enable you to trade the underlying instrument (stocks and stock indices among others) on a margined basis. This means that you only have to invest a certain percentage of the transaction value. Leverage is expressed as a ratio (e.g. 20:
