CFD: Cash for Diffrence
What are CFDs?
Difference between Futures and CFDs
- Futures trade through regulated exchanges. CFDs can be traded directly through a broker.
- Futures are less liquid compared to CFDs. It means orders get filled faster when required, ensuring profits and getting the pay-out you anticipated when you settle your trade.
- CFDs do not have an expiration date as Future contracts have an expiry date.
- Futures sometimes restrict the small traders because of the contract size and specifications.
How to use it
What are Leverage and Margin?
Scenario Trade position:
The market is up against Long/Buy At the time of entry: 1800/1805 (Sell/Buy) Spread=5 At the time of closing: 1805/1810(Sell/Buy) Spread=5 The market is down Short/Sell At the time of entry: 1800/1805 (Sell/Buy) Spread=5 At the time of closing: 1795/1800 (Sell/Buy) Spread=5
In this example, the spread remains the same in any condition, whether the market moves up or down. But you tend to get benefits as per the assumption or market analysis in both market conditions.
Another CFD example:
FOREX CFD :
Suppose: EUR/USD is trading at 1.13055/1.13155
You decide to buy €10,000 because you assume the price of EUR/USD will rise shortly
Let’s suppose EUR/USD has a margin rate of 3.34%, which means that you have to deposit 3.34% of the total CFD value as position margin. So, here your position margin will be (3.34%*[10,000*1.13155]).
Outcome A: Profit
Current Price: 1.13155/1.31255
The price has moved up 10 points (1.13155-1.13255)