What is a CFD?
Contracts For Difference (CFDs) are specialised and popular Over The Counter (OTC) financial derivative products which enable you to trade on the price movement of financial assets Indices Futures, Commodity Futures, Cryptocurrency, Shares and Exchange Traded Funds.
They enable clients to trade freely without actually owning the underlying asset or acquiring any rights or obligations in relation to the underlying asset. The main benefit of trading CFDs is the flexibility to trade against the price movements without actually buying or selling the physical instrument.
AvaTrade’s CFDs derive their price from the underlying asset. You can trade CFDs if you believe the price of a financial instrument is likely to go up in value (strengthen) and if you think it is likely to go down (weaken). Your profit or loss in online CFD trading is determined by the difference between the price you buy at and the price at which you sell.
CFD Trading Methods
There are various trading strategies that are often used when trading CFDs, that even the most unskilled trader can understand. These decisions involve a number of trading methods and the most popular are the Long vs. Short
A long position in trading CFDs is when a trader purchases the asset. This will mean that the asset will rise or see an increase in its value over the time of life of the contract.
In long term trading, as it has a higher level of forecasting ability will allow traders to act on lower price market moves. Trades normally last from month to more than a year.
The short position occurs when the trader feels there will be a decline in the assets value and a ‘sell’ is selected, however there is an intention from the trader to buy the contract back at a later stage.
E.g.: A short seller’s expectation is that the price of the asset will fall over the life of the contract. If his prediction is wrong and the price of the asset starts to rise the open trade will sustain a loss, which is calculated by the difference between the opening and closing price of that asset over that time. The reverse is true should his open trade indicate that the asset chosen would decrease in value.
Short term trades can allow profits from short time spans even up to minute-to-minute moves. Limiting financial costs is an advantage in short term trading.
This would be a happy medium that offers both undated futures and contracts and can be traded on short or long term CFD strategies.
CFD Trading Avenues
Traders at AvaTrade can enjoy one of the largest ranges of Commodities, Stocks and Indices compared to most brokers.
- A selection of powerful trading platforms, including MetaTrader 4 and MetaTrader 5 platforms for desktop, tablet & mobile
- Web trading platform (no download and installation required)
- Trade the leading US, European & Asian stock indices
- Go long or short – trade your view on the market
- Get leverage of up to 400:1 on CFD trading
- Trade on the move with our new AvaTradeGO app
- Both manual and automated trading platforms available
Other recommended guides:
- How to trade gold online
- How to trade bitcoin
- How to Trade Cryptocurrency