What are CFDs
- Commodities trading
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 like Indices Futures, Commodity Futures, and Shares.
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.
Friedberg Direct’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 values of the asset when you open and close the contract.
CFD Trading Methods
There are various trading strategies that are often used when trading CFDs, which even the most unskilled trader can understand. These decisions involve a number of trading methods and the most popular are Long vs. Short trading.
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.
The short position occurs when the trader feels there will be a decline in the asset’s value and a ‘sell’ is selected.
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.
CFD Trading Venues
Traders at Friedberg Direct can enjoy one of the largest ranges of Commodity, Stocks and Index CFDs compared to most brokers.
- MetaTrader 4 and MetaTrader 5 – desktop, tablet and mobile trading available
- Trade the leading US, European & Asian stock indices
- Go long or short – trade your view on the market
- Get leverage
- Trade on the move with our mobile apps.
- Both manual and automated trading platforms available
What are the Advantages of CFDs?
- No Exchange fees – You do not own the underlying asset and do not acquire any rights or obligations in relation to the underlying asset. It is a contract between the client and Friedberg Direct.
- Leverage trading – You need significantly less capital to open a trade in comparison to owning the underlying asset. Leverage is a double-edged sword, of course, as it can significantly increase your losses as well as your gains.
- No Stamp Duty – For many, CFDs are not subject to stamp duty (this is subject to your individual circumstances and jurisdiction and can change).
- Multi-vehicle Investment – The ability to trade a range of instruments as well as forex pairs from the same trading platform.
- Trade on both rising and falling markets – Open either short or long positions according to the market conditions and your trading strategy.
- CFDs don’t expire – Where there is a rise, there will generally be a following fall – the market is continuous and cyclical.
- Hedging potential – A buffer for your trades if the trade is not going in the intended direction you can open the equivalent position in the opposite direction to mitigate the risks.
Other recommended guides: