Contract for difference (CFD): a contract between a buyer and a seller. The buyer and seller agree to exchange the difference between the price of a share at the opening and closing of a trade.
Leveraging: using a percentage of your money with the CFD provider 'lending' you the remaining amount
when you open a trade you place a deposit ('margin') upfront and the CFD provider will lend the remaining value of the trade
e.g. if you put in 5% of your own money to open a trade of the market value the CFD provider makes up the remaining 95%
Even though the CFD provider lends you the remaining amount of money to meet the full trade size, you are always responsible for the full value of the CFD trade.
"don't let any tiny deposit fool you"
If you take out a $50,000 trade, you need to be able to back that up if the market moves in the opposite direction of your trade.
There is no physical delivery of a CFD contract nor do you have any of the additional benefits of owning a share (such as attending the annual general meeting), you do however take part in dividends and any corporate actions (such as bonus shares).
'financing charge': applicable when trading CFDs on shares, sectors and indices (but not on commodities).
because you are borrowing funds from your CFD provider, you need to pay interest to the CFD provider
usually referenced to a benchmark interest rate. It can be about 2-3% above the relevant benchmark interest rate for that country.
Contract for difference (CFD): agreeing to exchange the difference in value of an asset between the point to which the contract is open and when it's closed.
enables you to speculate on price movements on financial markets without buying or selling any underlying asset.
Can trade CFDs on:
indices
shares
forex pairs
commodities
crypto currencies
CFD trades are leveraged so you only need to put up a small deposit known as an 'initial margin' to open a position.
You can set a stop to manage risk stops will automatically close a position if the price moves against you.
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