CFDs
A contract for difference (or CFD as they are more commonly known) is an agreement to exchange the difference in value of a particular share or index between the time at which a contract is opened and the time at which is it closed.
CFDs have become one of the fastest growing financial products to enter the Australian market place. The popularity of CFDs amongst both investors and traders is due to their flexibility and simplicity.
CFDs offer all the benefits of trading shares without having to physically own them. CFDs mirror the performance of a share or an index and are traded on margin, so investors only need a small proportion of the total value of a position to trade.
The profit/loss of a CFD is determined by the difference between the buy and the sell price. The owner of a share CFD will receive cash dividends and participate in stock splits.
CFDs are not suitable for ‘buy and forget’ trading or long-term positions. Each day you maintain the position it will cost interest (if you are long) or you receive interest (if you are short), so there is a time when CFDs become expensive.For short-term trading they have advantages, provided you get the markets right. But be prepared to trade with a Stop Loss.
CFDs are instruments that offer exposure to the markets at a small percentage of the cost of owning the actual share. This allows the investor to buy or sell an instrument, with only 10 per cent cash balance of the price of the underlying share. It offers great leverage opportunities.
CFD Education
For CFD education, Total Investor provides a Introduction to CFD Trading info pack. The CFD education details what are CFDs, how CFDs work and provide CFD trade examples.
