What are CFDs in Forex TradingBefore you begin with your CFD trading journey, first you need to understand what CFDs (Contract for Difference) are. To save you some time and energy, FinPros has produced this CFD Guide for Beginners. Here we’ll explain everything you need to know before you start trading CFDs.
What is a CFD?Contracts for difference (CFDs) are financial instruments that belong to the derivatives class. CFDs allow traders to speculate on the price fluctuations of the underlying assets. This means, by buying (or selling) a CFD you don’t actually gain (or transfer) ownership of the underlying asset. The main purpose of CFDs is to speculate on the rising or falling prices of a variety of different assets. CFDs are available on various asset classes, like:
Where to Find CFDs?You can find many online forex brokers, such as FinPros, that provide access to CFDs. Unfortunately, most brokers don’t have our passion for top service and full transparency. Finpros is one of the lowest-spread CFD brokers in the industry with the fastest trade execution and a top-notch customer service team. To find out more about the different CFD asset classes that we provide, you can visit FinPros detailed trading instruments page
How do CFDs Work?CFDs are traded on electronic trading platforms like the Metatrader 5, MT5 for short. On such platforms, you can open and close position (open and close contracts) at the click of your mouse. When you buy/sell a CFD asset, you engage in a contract between yourself and your broker. This contract is an agreement to settle the price difference of a particular asset, between the time you open and close a position. When you close the position, you automatically receive or pay the difference between the closing price and the opening price of the CFD. That means if the trade was profitable, the broker will pay the price difference in the trader’s account. On the other hand, if the trade was unprofitable, the broker will deduct the price difference from the trader’s account. It’s important to note that you can speculate on price movements in either direction. You can speculate that prices will rise or fall. In CFD trading terms, you can open a
- “Long” Position (Buy a CFD asset)
- “Short” Position (Sell a CFD asset)
How to Trade CFDs?
With FinPros, you can use the industry’s most popular trading platform to trade CFDs. MT5 is the best CFD trading platform in the market. It is packed with charting and analysis tools to give you a smooth and user-friendly CFD trading experience.
Not only that, most of our customers love trading on our trading platform CFD from their mobile. You can access the markets from anywhere and anytime from the palm of your hand.
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CFD Margin & Leverage
One of the major advantages of CFD trading is the fact that they are traded on margin. This means you can open large position sizes without having to deposit the full amount.
To better understand, let’s imagine you want to buy €100,000 worth of EUR/USD. Without leverage, you’d have to deposit the full value upfront. But with a leverage ratio of 1:500, you would only have to deposit €200 free (0.2% of the full amount) to open a position of €100,000 worth on EUR/USD.
That’s the magic of Leverage! Having said that, keep in mind that trading leverage carries the same probability to increase losses as it does to boost profits. Read our Risk Management for CFD Trading article to learn more about protecting your capital and trading better.