{"id":155261,"date":"2019-09-12T10:15:11","date_gmt":"2019-09-12T14:15:11","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=155261"},"modified":"2019-09-12T07:47:51","modified_gmt":"2019-09-12T11:47:51","slug":"what-is-a-contract-for-difference","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/09\/what-is-a-contract-for-difference\/","title":{"rendered":"What Is A Contract For Difference?"},"content":{"rendered":"
September 12, 2019<\/div>
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By <\/strong>Orbex<\/strong><\/a><\/p>\n

Entering the forex markets as a beginner trader can be quite overwhelming. Aside from the risks and charts that tend to intimidate budding investors, there\u2019s also a whole bunch of FX \u201clingo\u201d that can be difficult to get the hang of.<\/p>\n

Perhaps the first of these \u201cforex-isms\u201d you\u2019ll come across is the term \u201cCFDs\u201d.<\/p>\n

But don\u2019t be discouraged by the fancy abbreviation! This acronym is effectively just a 3-letter depiction of the concept of the forex markets. And we\u2019ve simplified it all for you today.<\/p>\n

Breaking Down CFDs<\/strong><\/h2>\n

A contract for difference, or CFD, is an agreement between a forex broker and trader that allows you to speculate on the price movement of a financial instrument.<\/p>\n

In the forex markets, the financial instruments you can speculate on are currencies, commodities, indices, energies, and equities.<\/p>

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As an FX trader, you choose a financial instrument and speculate on whether its value will increase or decrease. In the case of currencies, you speculate on the value of one currency against another.<\/p>\n

You then open a trade or \u201cposition\u201d accordingly, typically on an MT4 online trading platform.<\/p>\n

And just like that, you\u2019ve entered a contract for difference!<\/p>\n

This contract means that you and your broker have agreed to exchange the difference between the opening price of the contract and the closing price of the contract, without you ever physically purchasing or acquiring the asset you\u2019re trading.<\/p>\n

Let\u2019s Take an Example of a CFD<\/strong><\/h2>\n

If you believe the price of gold will go up, you will open a \u201cbuy\u201d position, hoping to then sell whatever value of the gold you\u2019ve bought for more money at a later date.<\/p>\n

If it goes your way, you can decide to close the \u201ccontract\u201d or position at a higher price than what it cost at its opening, meaning you\u2019ve walked away with a profit.<\/p>\n

So,\u00a0CFDs are simply a way for you to monetize and profit from your speculation<\/strong>\u00a0that the price of gold will go up, without you ever having to physically buy, ship and store a whole load of gold bars.<\/p>\n

But remember \u2013 the forex markets are risky. If the market moves contrary to your speculative position or trade, you may lose all the money you\u2019ve invested, depending on the closing price of the contract. However, you can always predefine the price at which you wish to close the position, and that\u2019s called the \u201cstop loss\u201d price.<\/p>\n

Why Trade CFDs<\/strong><\/h2>\n

Before online CFD trading arrived, anyone who wasn\u2019t a financial professional or institution could neither access nor profit from the global forex markets (apart from by physically exchanging money).<\/p>\n

CFDs, therefore, enable anyone with an interest in the FX markets to partake in this global industry, no matter where they are in the world.<\/p>\n

CFDs are also leveraged products. This means you can invest as little as 1% of the capital needed to yield profits from forex market movements.<\/p>\n

In addition, since CFDs monetize your prediction on price movement, you can profit from \u201cshort selling\u201d, (or speculating that the price of an asset will go down,) without physically \u201cowning\u201d it to begin with.<\/p>\n

So, regardless of how the markets are doing, there is always money to be made and risk to be managed. And you don\u2019t have to have a hefty stash of valuable stock shares to become a forex trader!<\/p>\n

What Do I Need to Trade CFDs?\u00a0<\/strong><\/h2>\n

Well, the very basics include a laptop, an internet connection and an account with your forex broker of choice.<\/p>\n

However, beyond that, you need to have a good few (hundred!) hours of research and practice on a demo account under your belt before you risk your capital.<\/p>\n

These days, we can\u2019t even order a meal without\u00a0doing extensive research<\/a>\u00a0on the restaurant. So investing your money in forex trading should be no different.<\/p>\n

Which brings us to another essential: having an allocated amount of money that you are willing to lose. If there\u2019s one thing you\u2019ll quickly learn in the forex market, it\u2019s that it\u2019s volatile and everchanging. So never enter an FX trade with capital you are not prepared to part with.<\/p>\n

Now that you know what CFDs are, it\u2019s time for you to learn more about forex trading. And, most importantly, to get practicing on\u00a0a free MT4 demo account!<\/a><\/p>\n

By <\/strong>Orbex<\/strong><\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Orbex Entering the forex markets as a beginner trader can be quite overwhelming. Aside from the risks and charts that tend to intimidate budding investors, there\u2019s also a whole bunch of FX \u201clingo\u201d that can be difficult to get the hang of. Perhaps the first of these \u201cforex-isms\u201d you\u2019ll come across is the term […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-155261","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/155261","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=155261"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/155261\/revisions"}],"predecessor-version":[{"id":155279,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/155261\/revisions\/155279"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=155261"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=155261"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=155261"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}