CFD trading is the trade of CFD certificates. CFD certificates or Certificat/contract for difference are financial instruments that allow you to assume leveraged positions. Also known as margin positions. CFD certificates can be based on a long row of different financial instruments such as stocks, currencies, commodities or indices.
CFD certificates make it possible to earn a very high return on your positions and allow you to make a lot of money on small investments. Using a CFD certificate you can earn the same profits as people who invest a lot more money in the underlying financial instrument. You can earn the same profit from investing USD 1000 in a CFD as you would investing USD 250 000 directly in the stock.
CFD trading is extremely high risk and you can lose a lot of money.
How do CFD Certificates work?
CFD certificates are based on underlying financial instruments. The value of the CFD goes up and down in relation to the market value of the underlying instrument. There are bear CFD certificate that have an inverted relation to the underlying instrument. IE they go up in value when the instrument goes down.
Most CFD brokers offer CFD:s with different leverage. The leverage multiplies the increase or decrease in value of the CFD in comparison to the underlying instrument. IE if you trade a CFD that has a 1:50 leverage then the CFD will increase 50% in value for every 1% the underlying asset increases in value.
Different brokers offer different leverage. The highest leverage is usually found on FOREX based CFD:s.
CFDs are designed to be short time investments. They are primarily meant for day trading. They are not meant to be held over night. You can hold a CFD over night if you want to but if you do you will need to pay an overnight fee.
Is it a fraud?
No. Some people believe that CFD certificates are fraud but this is not the case. Not if you trade with a large regulated broker with a good reputation. There are small brokers who offer CFD certificates to scam their customers.
Should i trade with CFD certificates
Trading with CFD certificates can be very profitable but most people should not invest in them. Most people will lose money if they try CFD trading. It is hard to become a successful CFD trader and you will need to be disciplined and willing to devote a lot of time to in if you want to become successful.
It is possible to make a very good living trading CFD certificates but it is very important that you understand the risk and that you understand that it can be hard to become successful. Do not try CFD trading unless you are sure that you have the discipline and dedication necessary to succeed.
It is not a quick easy way to make money. But it is possible to make a lot of money, millions, if you are willing and able to do what is required to be successful.
Understand the risk!
It is very important that you understand the risks associated with CFD trading. There is no other instrument that is associated with the same risk as CFD trading. You might lose an unlimited amount of money when trading with CFD certificates.
How much money you earn or lose will be determined by the market value of the underlying financial instruments. Most financial instruments will have a limited volatility and this limited volatility limits your probable loses. But in theory you can lose an unlimited amount of money. Some CFD:S has a limited downside since the value of the underlying asset is unable to sink below 0. Bear CFD:s (CFD:s where you earn money when the value of the underlying asset goes down) has a theoretically unlimited downside as there is no limit to how high the value of the underlying instrument can climb.
Your loses are not limited by how much money you have invest in the CFD. You can lose more than you invested.
Your loses are not limited by how much money you have in your account. You can lose more money then you have in your account. If this happens you have a legal obligation to deposit more money to cover the loss. Most CFD brokers will margin close your position if you do not have enough money in your account to cover your loses but you can never rely on this.
Never leave a CFD position unsupervised.