Contracts for Difference

In CFD trading, you do not need to buy and sell the actual assets you wish to trade since CFDs are a derivative product. Instead, you are basically making predictions on future market fluctuations and price movements while not being required to hold the actual underlying asset. For instance, when a stock CFD for Apple increases in value, the value of your CFD position will appreciate proportionally with market movements for the company’s stock shares.

Buying a CFD means you will essentially be making a prediction that the market will appreciate. This is also known as “going long” or taking a “long position.” Alternatively, “going short” is predicting that the market will move downward which means your position will increase in value as the market depreciates. This enables you to make profits even when the markets are
declining.

A CFD is basically an agreement between you and your broker. The two parties agree to pay the difference in the value of the CFD from when the position was first opened and when the position is finally closed. For example, if you were “going long” and the market has appreciated, this would mean the broker would be paying you the difference. However, if the market had depreciated, you would be paying the broker the difference.