What is CFD Trading?

       

        A little history

CFD trading is one of the newest financial instruments. It was originally developed in the early 1900s in London by a derivative brokerage firm called Smith New Court, which was later bought out by Merrill Lynch. Initially it was used for hedging funds to short sell in the London Stock Exchange. Gradually CFD became more and more popular, especially when traders realized that a real benefit from it is that you can use high leverage for larger bets. The first company that made CFD trading available for an individual was GNI, by creating an online trading system called GNI Touch. Due to it, private investors and small investment companies got the opportunity to trade on the London Stock Exchange without having a direct access to it.  GNI was followed by IG Markets and CMC Markets. It is now considered that over 25% of Britain's stock market turnover is related to CFD.

The concept of CFD trading

CFD or Contract for Difference is a contract between two parties, called “the buyer” and “the seller”.  Its price is based on underlying asset, for example a stock index, a single stock or commodity. In other words one side of the contract is the investor and the other one the CFD provider or broker. By opening a live account with the broker the investor can speculate on up or down movement of the underlying asset. He will be able to gain profit by both going long or short. And this is due to that CFDs are derivative products, which allow the investor to trade on live market price movements, without actually owning the underlying asset.

Equity, Index and Commodity CFDs are now available in new generation trading platform NetTradeX for IFC Markets traders. The principle of CFD trading is very simple. The trader can buy a certain number of CFDs expecting the underlying asset to rise or sell a certain number of CFDs expecting the underlying asset price to drop. Later on when you close the buy position it means you sell the underlying asset, and vice versa, when you close the sell position it means you buy the asset. The difference between opening and closing prices makes your profit or loss.

CFD trading is based on margin trading. What does it mean? It means that you can open a position having deposited very small amount. How is it possible? It is possible due to leverage, provided by IFC Markets. IFC Markets offers its clients quite high leverage which differs depending on the account type and trading instrument.

Those who choose IFC Markets for CFD trading will get an access to Index CFDs, Equity CFDs and Commodity CFDs.

The company provides 80 Equity CFDs, including stocks of Facebook, Apple Inc, Amazon.com Inc, Xerox, Yahoo and many other highly liquid US stocks. The leverage for Equity CFDs is 1:40. Commission of 0.1% is charged only for position opening. For position closing there are no fees. One more important thing is that Equity CFDs are Swap free in IFC Markets. As for dividend adjustment it is amount equal to the announced dividend which is credited to or deducted from the client's amount depending on the position direction. In case of holding long position at the moment of session opening dividend adjustment will be credited to the trader's account, in case of short position, it will be deducted from his account. Note that IFC Markets pays 100% of dividends.

Index CFDs allow speculating on changes in dynamics of stock and currency indices. Such popular indices as DJI, SnP500, DAX, DJI, Nd100, CAC40, FTSE100 and NIKKEI are calculated uninterruptedly without an expiration date.

Commodity CFDs allow investing in dynamics of commodity prices. IFC Markets provides Light Sweet Crude Oil and in case trading with IFC Markets you will get an opportunity to gain profit by investing in dynamics of oil barrel price. This instrument is calculated uninterrupdetly, as well.

As a conclusion I would like to say that I myself have recently started investing in CFDs and have noticed some advantages over traditional share market.

• CFD trading is based on margin trading, giving you an opportunity to maximize your profits
• You have a real opportunity to make profit both going long and short
• No Stamp duty should be paid, unlike traditional share market
• You are able to manage your CFD positions by using Stop Loss and Take Profit orders.