CFD Trading Education
CFD Basics
CFDs are excellent trading instruments because they allow traders to participate in the stock or futures markets at a fraction of the cost of traditional trading!What are Contracts for difference (CFDs)?
A CFD (contract for difference) takes the form of an agreement to exchange the difference between the opening and closing prices of a particular instrument. Unlike a share trader or a commodity trader who makes a profit by buying and selling the underlying stock or commodity being traded, a CFD trader never owns the instrument being traded. Therefore, CFDs do not require a broker or an exchange fee and they don’t require the full value of the underlying instrument to purchase. As a result, CFD traders can capture the value of market movements in stocks, indices and commodities more efficiently. Moreover, ICM traders can trade both Forex and CFDs from the same ICM trading account.
Investors start by entering into an agreement with a CFD provider such as ICM. Each side commits to settle the difference between the price of an underlying instrument when the agreement is made and the price at the end of the agreement. If we use gold as an example, this means a trader has an interest in the price deviation of gold from its original value without actually having to purchase gold. If trader believes the price of gold will increase, the trader can purchase (or go "long") gold CFDs and if the trader believes the price of gold will decline, the trader can sell (or go "short") gold CFDs.
Why trade CFDs with ICM?
CFDs are relatively simple to trade - particularly with online trading providers such as ICM. CFDs allow traders to capture the value of market movements less expensively and more efficiently than buying the instrument from which it is derived. This is because 1) CFD traders trading with ICM avoid brokerage and exchange fees and 2) CFD traders trading with ICM benefit from industry leading margins ranging from (blank to blank).
Moreover, CFDs can make an excellent complement to most investing methods mostly due to the fact that you can buy or sell a wide range of markets in any market condition. Because CFDs are based on underlying financial market movements, they can also suit most trading strategies - including hedging strategies - as they follow the same patterns and trends as the markets from which they are derived.
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