A contract for differences, or simply a CFD, is one of the world’s fastest growing and exciting trading instruments. A CFD is an agreement to exchange the difference in value of a particular asset (share, stock index or commodity futures) between the time at which the contract is opened and the time the contract is closed. Essentially a CFD is a derivative contract and it closely follows the movement and pricing of the underlying asset, for example, a particular share. Investors speculate on the price and its future direction by taking short and long positions, but unlike normal trading on shares, there is no physical ownership of the product.
CFDs on stock indices are traded in the same way as forex trading. One of their most attractive features is the ability to trade on a margin basis. The power of leverage allows the investor to enter the market using less capital than required for normal trading of stocks making a potentially great return on investment. Traders can profit from the rising and falling CFD stock index prices by placing short positions at a real-time price and selling shortly after at a future price. Such a short time frame for potential profit from CFD stock index trading is unbeatable when compared to trading regular stocks, where positions often have to be held for months before reasonable profit can be made.
Important: Your risk when trading CFDs
CFDs trading with leverage can lead to high profits, but may also lead to substantial losses. When investing in contracts for difference indices, you should carefully consider your investment goals, level of experience, and risk appetite. Your risk is unlimited and there is a possibility that you can lose some or all of your initial investment and any profit and therefore you should not invest money that you cannot afford to lose. However through the use of offsetting positions during market movements and placing stop loss orders which Volume Groups FX allows, you can limit the potential losses during CFDs trading.