What is a Contract for Difference (СFD Trading)
Aside from currency trading, UK brokers provide opportunities to benefit from movements of CFDs. This finance tool allows you to speculate on values of shares, essentially monetising your foresight. Here are the basics to help you understand how to Trade Share CFDs with FXTM.
The Basics: General Description
The abbreviation stands for ‘Contract for Difference’. As the term suggests, it is an agreement between parties, in this case, known as “seller” and “buyer”. The subject of the contract is the price movement of shares, although it is also applicable to commodities, currencies and indices.
In certain respects, the activity resembles other forms of Forex trading. First, CFDs give no actual ownership of the assets. In the realm of currencies, no physical assets are bought or sold either. Secondly, in both cases, profit is purely price-based, determined by changes in rising or falling markets.
Thirdly, these types of trading carry similar transaction costs known as “spread”. They also allow you to choose a “short” or a “long” position on the asset. All operations are executed electronically over the internet. There is no physical exchange. In both cases, you will be using versions of the same cutting-edge software — the MetaTrader platform.
Basic Conditions of Trading
1. Can leverage be used?
Leverage is an extremely useful tool popular with currency and CFD traders. It allows you to include borrowed funds in your trade, thereby boosting the volume and possible returns. However, bear in mind that betting big could also bring bigger losses. In general, this is a popular method to maximize one’s buying power.
2. How much is the spread?
Different accounts come with different spreads, starting from a mere 0.1. The Trading Accounts Comparison section of the website lists all the minimum spreads, pricing rules, as well as limit and stop levels.
3. When can you trade?
With FXTM, you have the luxury of trading around the clock every weekday. Share CFDs may be bought and sold whenever the marketplace is open.
4. How much can you trade?
This concerns the allowed lot sizes. What volumes to choose is entirely up to you. Different sizes suit different traders depending on their experience and attitude to risk.
Different from Conventional Stock Trading
Purchase of physical shares makes you the owner of a certain percentage of the business. For instance, when shareholders of Tesla invest in their stocks, they provide capital to gain from the corporation’s successes. Aside from the dividends, they can sell the shares off when their value spikes.
On Forex, everything is done online. CFDs allow you to speculate on the share prices with no need for ownership. This peculiarity accounts for the appeal, in addition to leverage and comprehensive broker guidance.
Choose Your Broker Wisely
Forex is wildly popular in many countries. Given the existence of fake websites, it is vital to check that your broker is legit. It must be officially licenced to operate in the United Kingdom.
For example, FXTM, a truly global brand with clients in 150 countries, is subject to regulation by the UK’s FCA, FSC of Mauritius, SEC in Cyprus and FSCA in South Africa. Since 2011, the company has allowed over 2 million people to access the global currency market.