The contract signed between buyer and seller is known as Contract for Difference (CFD) which price depends on the given asset: a stock, an equity index, or commodity futures. Being introduced in 1990 CFDs were firstly available to institutional traders however now they also attract to and are obtainable for retail traders.
CFD trading has become greatly popular nowadays as compared to the past. This mainly depends on certain advantages including leveraged positions, low costs and time saving benefits. This kind of trading offers a wide range of financial tools like stocks and equity indices, commodities and derivatives.
If the price of the given asset increases when the parties decide to close the position the seller should pay the difference between the initial value of the asset and its current value to the buyer. Otherwise, i.e. in case of value decrease when the difference becomes negative it’s the buyer who pays.
CFD gives traders a chance to experience on various assets. They can take long positions while the price rises and short positions in case the price falls.
CFDs due to these advantages have become speculative, hedging and investment tools both for retail traders and institutional investments.
The general concept and ideology of CFD trading and CFD trading rates is quite simple and is similar to the traditional currency trading. Traders have an opportunity of buying certain number of CFDs while expecting a decrease in the price value. When closing the position the opposite transaction is made. This is a quite essential point in CFD trading as it helps to make a profit based on the price fluctuations.