What is CFD trading? ► Episode 4 Learn Finance

Hello everyone! Today we will look at What is CFD trading?

CFD stands for contract for difference, which is a derivative product that traders can use to speculate on the future direction of a market's price. You'll never take ownership of the underlying asset, which means you can take advantage of rising and falling markets.

In finance, a contract for difference is a contract between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time.

Now the asset you can trade trough CFDs are Stocks, Commodities, indices and Currencies. If you believe that that the price of an asset will go up you can buy a CFD and gain the benefit from it - Thats called going long!

The profit arrives from buying the CFD at lower price and selling it for more. So if you buy an apple cfd for a 100 and sell it for 120 you gain 20 pounds profit.

On the other hand if you think the asset price will go down you can sell a cfd and try to profit from the fall of the stock. This is called going short or shorting the stock.

The profit in these situations arrive when you sell the cfd for more and buy in at lower cost. So if you short it at a 100 and close the position at 80 you gain 20 pounds profit.

The biggest advantage of CFD is that you can go long or short on margin.
If you use leverage 1 to 5 you will only need to pay 20% of your investment.
With your 100 pounds investment into apple. You will be able to afford 500 pounds worth apple stock. 400 pounds borrowed money and 100 with your own money. And if the investment increased by 20% you will gain 100 pounds profit.

Then you can close the position and give back the 400 pounds you borrowed from the broker. leaving you with a 100% returns on your initial 100 pounds investment.

Of course if you were wrong on your position and the stock price went the other way you will be the one that will take the burden and not the broker.

So if the stock goes down 20% while you in the long position you will lose your 100 pounds investment and the position will be closed to protect the brokers loan that was given to you.

I do need to warn you that at least 75% of the people that do CFD trading do lose their money so you got to be careful and make sure you do it when you understand the situation!

I hope you liked this video What is CFD trading? ► Episode 4 Learn Finance if you did please do subscribe to my channel!

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Filmed on : Fujifilm XT-3
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Disclaimer: All ideas presented within this video are that of my own based on my own opinions. Please do not consider any of these videos as financial advice as I am NOT a financial advisor. All financial decisions and choices made are solely your responsibility. The views shared in this video are just for entertainment purposes only.