The term CFD stands for Contract for Difference. The contract is an agreement between two parties to exchange the difference between the opening and closing price of the instrument. CFD trading allows you to take a position on the value of an instrument and predict whether it will rise or fall. As a derivatives product, you don’t actually own the underlying asset directly, which saves you from traditional physical dealing costs and all you are doing is simply trading on the movement of underlying prices.
The main advantage of CFD is that it lets you profit not only from rising markets, but also with falling ones, while conventional forms of trading allow you to profit only when the market is expanding.
For example, if you believe the price of an asset is going to rise, you go long or ‘buy’ and you’ll profit from every increase in price. If you believe the price of an asset is going to fall, you go short or ‘sell’ and you’ll profit from every fall in the price. You only suffer a loss if the markets don’t move in the direction you expected.
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