CFD or “Contract for Difference” is considered as a derivative.
What is a derivative?
A derivative is a financial instrument that gives the trader the opportunity to trade by betting on the price of an underlying asset without physically owning it.
If a trader decides to trade oil, he or she is not obliged to hold this asset physically, the trader just speculates on the price movement by going long or short.
CFDs are common since they can be traded using margin accounts or leverage trading. A trader doesn’t need a huge amount to begin trading and there are potentially large profits to be made by trading CFDs. However, it is important to remember that large losses could also be incurred using leverage trading. Hence why it is known as a double-edged sword.
CFDs are traded 24 hours a day five days a week and on weekends the market is closed.
A trader can trade CFDs on almost any financial asset in the market, from forex to indices, and more recently cryptocurrencies.
That’s it for CFDs.
Thank you for listening.