What is CFD trading? CFD is an abbreviation for “CF Exchange Traded Fund”. What exactly is CFD trading, then? CFD trading is a financial derivative instrument that enables traders to speculate on possible short-term price movements in publicly traded common stock indexes.
One example of such an index is the London 100, which gathers the price movements of the leading stocks listed in the London market. It is believed that CFD Trading has significant implications for the markets. Thus, CFD trading south Africa is being progressively introduced into the European and United States markets.
CFDs are traded on futures exchanges. There are two types of CFDs: Over-the-counter (OTC) trading products. The “OTC” trades are those where the trader is not required to personally guarantee the payment of the principal or interest amount during the hedging transaction.
A “leverage” CFD is a type of CFD in which traders can hold a larger number of shares or CFD positions on one trade and gain greater leverage over their counterpart in an un-leveraged CFD.CFD trading strategies can be employed either with or without leverage. Here, we will look at some of the more popular ones:
Long Straddle CFD -This is often the most simple form of CFD trading as it involves only one contract. This CFD deals with commodities, such as gold, oil, or silver. The trader pays for the deal size in terms of a premium and must either protect that contract by maintaining a margin on the underlying asset or by locking the deal size in a cash account.
Short Straddle CFD – On the other hand, a short Straddle CFD describes a series of CFD transactions that involve selling and buying of the underlying asset in a single trade. It involves two contracts, or more, and hence has more profit potential than its longer counterpart. It is ideal for smaller trades. CFD trading strategies using short straddle CFDs require very high trading margins.
Demo Account CFD – It is possible to open a “demo account” for CFD Trading, whereby you use real money in place of real money so that you do not risk your actual capital.
This is very useful when you want to practice trading and learn how different strategies work before risking your own money. You can open a free demo account on an online broker’s website, or register with a broker of your choice to open a free live account. Some brokers offer additional discount rates for demos and demo accounts, so it is worth looking around for the best price.
Spread Betting CFD – CFDs employ spreads in trading. These are commissions or payment points between traders, and they help make the trades spreadable. This means that each trader pays a fixed amount of spread (also known as the spread) per transaction, irrespective of the type of trade entered into. CFDs were initially a part of margin trading, but as their popularity grew, they were introduced into Forex trading. Now, CFDs are used in all kinds of trading, be it short-term or long-term trading, and spread betting is no exception.
