Introduction to CFD Trading (Share and Stock Index CFDs)

CFD is an agreement in a future contract whereby differences in settlement are made only through cash payments. It is an easiest method of settlement because losses and gains are paid by cash. Contracts for Differences (CFDs) are normally traded as over-the counter (OTC).

CFD Trading gives you considerable benefits over conventional share dealing. A margin traded instrument, a Share CFD permits investors to get all of the advantages of having a stock without physically having the stock.
To be clear, CFDs offers investors to speculate with all the advantages and risks owning a security without actually owning it in the equity market, treasuries, commodities, etc. Major advantages also include Gearing, Immediate dealing, Interest and Dividend Adjustments, etc.

CFD is considered as a derivative product where the investor gets earnings from changes in the prices of stocks and shares. For example, if we buy a CFD on a stock that is $10 and the price increases to $11, then our profit is the change in price. That is, if we bought 1000 CFDs, then our profit is $1000. Share or Index trading (including both buying and selling) through a CFD is almost identical to physical equity trade financed by a loan.

At present, CFDs are available in over the-counter markets and/or listed markets in Switzerland, Italy, Germany, Australia, Singapore, Germany and the United Kingdom. Some other securities markets have plans to issue CFD in near future like Hong Kong. Brand names of CFDs are varied according to who issues them. They are sometimes called CBBCs (Callable Bull/Bear Contracts), and Turbo Certificates or Waves.

This article is written for Orient Financial Brokers (OFB), licensed and regulated by Central Bank of the UAE since 1997, to conduct brokerage in Foreign Exchange, Commodities, etc.