Contract For Difference

Contract For Difference meaning explained by CFDs experts, Finding out what is Contract For Differences.

What is a Contract For Difference?

 A CFD “contract for difference” is a financial instrument by which a broker and investor agree to exchange the difference in the current value of a particular asset and its value at the end of the time period prescribed in the contract. This fluctuation in price is called the “spread.” A Contract For Difference is tradeable and mirrors fluctuations in the value of whatever asset is the subject of the CFD (the “underlier”).  When you invest in a Contract For Difference, you are not purchasing a physical share of any company but, instead, are actually investing in your own (hopefully educated) opinion as to the future fluctuation of a particular asset during a preset period of time. Based upon whatever position you take in the Contract For Difference (whether values increase or decrease) and after the lapsing of that time, the broker and investor share profits (or losses) based on predetermined percentages which are included in the actual contract or Contract For Difference.

Contract For Differences are considered leveraged instruments since actual ownership interest in the asset is never acquired by the investor.  CFDs allow investors to share in the benefits and risks involved in owning an asset without actually owning it.  

What are the Advantages of Contract For Difference Trading ?

Contract For Differences provide higher leverage than in traditional trading.  Lower margin requirements mean you have to pay less capital upfront and you still have the potential for greater profits on your investments.  

In financial markets, leverage is commonly described as money borrowed to increase potential profits (financial leverage), but the term also applies to achieving the same goal using fixed assets (operating leverage).

Contract For Difference Brokerage firms provide leverage in financial trading accounts and the policies differ between brokers.  A leverage of 1:400 means you can buy or sell an asset that is valued 400 times greater than the amount of money in your trading account at that particular time. 

A Contract For Difference broker issues a margin call when the balance of funds in an investor’s account falls below a certain amount that is pre-determined using a formula created by the broker. When your broker issues a margin call, you have to deposit additional funds into your investment account (in the form of money or some other security) to bring your investment account up to the broker’s minimum required balance.

When investors don’t deposit additional funds, some brokers follow the first in first out (FIFO) manner of closing investors’ trades and others use the last in first out (LIFO) method, while other brokerages just close all trades immediately upon depletion of minimally required funds in the account.

Before deciding on a broker for Contract For Difference trading, be sure to consider the broker’s leverage and margin call policies. 

Most brokers offer Contract For Difference products in all major investment markets worldwide, including stocks, treasury bonds, commodities, binary options, foreign currencies and more. Typically, the Contract For Difference market doesn’t have any short-selling rules and since there is never an ownership interest in the underlier, traders of a variety of financial instruments benefit and enhance their investment portfolios.  

Another advantage of Contract For Difference trading is that there are few or no fees or commissions charged for trading a Contract For Difference.  Some brokers charge an initial Contract For Difference set up fee, but most brokers make their money when the trader/investor/client pays the difference or “spread” in prices.  The investor pays asking prices when buying and takes bid prices when selling and the spread can be small or large, but is typically fixed, and depends completely on the volatility of the underlier, or the asset which is the subject of the Contract For Difference.

Other advantages include the fact that there is no stamp duty to pay on Contract For Difference trades, you can go short (sell) if you think the price is going to fall, go long (buy) if you think prices are going to rise and you can use CFDs to hedge other investments in your portfolio.

For example, if you own $5000 worth of stock in Company A, you can sell the equivalent of $5000 worth of stock in that company through a Contract For Difference trade.  You can take the position that prices for the asset fall but the loss in value is offset by a gain in your short sell CFD trade.  Contract For Differences are often used to hedge portfolios especially in volatile global trading markets. 

How to open online Contract For Difference trading account ?

To open online Contract For Difference trading account Free you need to sign up with brokers and download their trading platform then you will be able to trade CFDs online free in a demo account and once you become familiar then invest real money and earn money online by trading Contract For Difference.

List Of The Best Contract For Difference Brokers In the World

Fxpro

Fxpro Contract For DifferenceBroker Founded in 2006, London-based FXPro is an online broker offering Forex trading along with CFD‘s. The MT4, MetaTrader5 and cTrader online trading platforms are available.

IG Group

IG Group is a UK-based company providing trading in financial derivatives such as contracts for difference and financial spread betting and, as of 2014, stockbroking to retail traders.

While the majority of the IG Group’s activities are based in the UK, the company has expanded internationally. IG Markets is the oldest broker in the best Contract For Difference trading brokers list.

Plus500

Plus500 was established in 2008 as an online international trading platform that is popularly used in Asia, Europe and Australia and elsewhere in the world.

CMC Markets

CMC Markets is licensed and regulated by the Financial Conduct Authority of the United Kingdom (FCA), one of the strictest regulatory agencies in the world.

eToro

eToro is a social trading and multi asset brokerage company that has registered offices in Cyprus, Israel and the United Kingdom.

HYCM

HYCM previously known as HY Markets broker is headquartered in London and is authorized and regulated by the Financial Conduct Authority of the United Kingdom.

City Index

City Index was founded in the UK in 1983 and now enjoys a global footprint that includes the US, Singapore, China, Poland and Australia.

Markets.com

Markets.com maintains its headquarters in Cyprus, UK and is an investment services firm that is operated by Safecap Investments Limited (Safecap), which was founded in 2006 and is a subsidiary of Playtec PLC.

AvaTrade

AvaTrade was founded in 2006 in Dublin, Ireland and is licensed and fully regulated in the EU and BVI, as well as Australia, Japan and South Africa.

ETX Capital

ETX Capital is a Contract For Difference broker that was established in 2002 and is headquartered in London, England.

XM.com

The XM.com Contract For Difference broker was established in 2009 in the Republic of Cyprus using the name Trading Point of Financial Instruments Ltd. The broker is regulated by CySEC as well as the UK’s Financial Services Authority (FSA).

Alpari

Alpari Ltd was created in Russia in 1998 but moved its headquarters to the UK where it is registered and strictly regulated by the Financial Securities Authority (FSA), Alpari UK has merged with Alpari Global and Alpari US is registered with and overseen by a number of regulatory agencies.

FXTM

FXTM is an acronym for ForexTime.com, The FXTM forex broker is owned and operated by its holding company FT Global Services Ltd and is based in Cyprus, Belize and Europe’s trading capital of London, UK.  

EasyMarkets

The easyMarkets broker is the result of the re-branding of “easy forex“, the name under which this broker was established in 2003.

London Capital Group

London Capital Group Ltd was founded in 1996 in the United Kingdom and regulated by the Financial Conduct Authority (FCA) of the UK. LCG trading began offering capital spreads in 2003 and is one of the leading financial services firms in the UK offering a wide range of investment assets that include Contracts for Difference (CFDs), stocks, indices, major currency pairs, binary options, soft commodities, oil and precious metals.

Best Contract For Difference Broker in Australia

Pepperstone broker is founded in Australia, Melbourne and has offices in USA, Dallas and China, Shanghai.

Best Contract For Difference Provider In Denmark

Saxo Bank is a Danish investment bank. It was founded as a brokerage firm in 1992. SaxoBank is one of the best Contract For Difference broker in the world,Saxo bank offers trading through its online platform SaxoTrader in Forex, stocks, CFDs, futures, funds, bonds and futures spreads. Private wealth management services are also offered.

Now you know how to choose the best Contract For Difference brokers in the world but continue reading to know about Swiss Contract For Difference brokers.

Best Contract For Difference Providers in Swiss

Dukascopy Bank

Dukascopy Bank SA is known for its transparency in its Swiss SWFX market place. In June 2011, the product is officially referenced on Dukascopy Bank’s official web site.

Swissquote Bank

Swissquote Group Holding SA is a Swiss banking group specializing in the provision of online financial and trading services.

The Swissquote Bank also has offices in Zurich, Bern, Dubai, Malta, London and Hong Kong. The Group has 545 employees.

U.S. Best Contract For Difference Brokers

Contract For Difference trading is illegal in U.S. and there is no Contract For Difference broker for U.S. Citizens.