CFDs Explained

CFDs (Contract for Difference) are derivative trading instruments that provide opportunities to trade on the price movement of various financial assets such as equity indexes and commodity futures.

CFDs Explained

  • What are CFDs?

    CFDs (Contracts for Difference) are derivative trading instruments providing opportunities to trade on the price movement of various financial assets such as equity indexes and commodity futures. CFDs offer a simple method to speculate on different markets without ever actually owning the underlying asset on which the contract is based. Traders find CFDs to be a popular option to diversify their trading into different global markets.

    Explore CFD Markets

    • Indices

    • Energy

    • Metals

    • Contract Specs

    What are CFDs Based on?

    An equity index is a financial asset that represents the value of a particular section of the equities market. One of the most popular equity indexes, for example, is the S&P 500, which represents the overall performance of 500 leading companies publicly trading in the U.S. stock market. If you trade the US 500 CFD from ThinkMarkets, you can decide whether you think the overall stock of these 500 leading companies will increase or decrease, and then place your trade accordingly. Other index CFDs from ThinkMarkets include UK 100, US 30, US Tech 100, France 40, Europe 50, Germany 30, Hong Kong 40, Japan 225, and Australia 200.

    A commodity future is a financial asset that represents an agreement to buy or sell a set amount of a commodity, like platinum, copper, or oil, at a predetermined price and date. Because the prices of commodities fluctuate over time based on supply and demand, a commodity future allows traders to speculate on the price movement of that commodity. If you trade the platinum CFD from ThinkMarkets, you can decide whether you think the platinum futures price will increase or decrease, and then place your trade accordingly. Other commodity CFDs from ThinkMarkets include copper and oil (WTI and Brent).

    Whether you trade an index CFD or a commodity CFD from ThinkMarkets, you will place your trades on the same platform where you execute Forex trades. It's easy to move between the Forex market and different CFD markets and quickly enter and exit trades with precision, accuracy, and speed.

    What are the Benefits of CFDs?

    One of the main benefits to trading CFDs is that you use leverage up to 100:1 to initiate a CFD trade with lower initial capital. This allows traders to gain a larger exposure to the movement of the CFD for a comparatively small cost of only the transaction spread. Although leverage can amplify a profit, it can also amplify losses, so proper risk management strategies should be followed when trading CFDs on margin. CFDs also present an opportunity to trade in both bullish and bearish markets and there are no commissions and no financing charges with ThinkMarkets. Trade all products from one account and fully capitalize on multiple trading opportunities from ThinkMarkets.

    Trading Benefits Include:

    • Leverage up to 200:1

    • Low capital requirements

    • Trade Indices, Energy & Metals

    • No financing charges

    • Easily enter and exit markets

    • Global trading on one platform

    To learn more about CFD trading from ThinkMarkets, review CFD Trading vs. Forex or CFD Markets.
    Get started trading CFDs right away by opening a live account with ThinkMarkets today.

  • CFD vs Forex

    Watch the video below to learn about the fundamental distinctions between CFD trading and forex trading.

    Similarities of CFDs and Forex

    CFD trading and Forex trading have many similarities. First, both types of trading involve a similar trade execution process. Traders can easily enter or exit the market in both rising and falling markets. Second, both CFD trades and Forex trades are executed on the same platform, using similar looking charts and pricing methods. In both cases, trades are executed in the over-the-counter (OTC) market, which is run entirely electronically within a network of banks, with no physical location or central exchange. Another similarity between CFD trading and Forex trading is that the only cost of trading is the spread, as opposed to other types of trading instruments that charge commissions and other finance fees.

    The primary similarity between CFD trading and forex trading is that neither entitles the trader to actual ownership of the underlying asset. When one buys EURAUD, for instance, one is not actually purchasing euros and selling Australian dollars; rather the trader is simply speculating on the exchange rate. Likewise, when a trader purchases a CFD contract on the FTSE 100, the trader is not actually owning the stocks in the FTSE index, but rather is speculating on its underlying price. In many ways, forex is simply another kind of CFD.

    Differences of CFDs and Forex

    The main differences between CFD trading and Forex trading is that CFD trading involves different types of contracts covering a diverse set of markets, such as indices, energy, and metals, whereas Forex offers pure currency trading. When you trade CFDs, you have the opportunity to select different contracts that vary in increment value and currency type, depending on the country in which the underlying asset originates. Forex trading is about trading one currency against another currency and always involves trading in uniform lot sizes.

    A final difference between CFD trading and Forex trading relates to the general factors that tend to influence the different markets. CFD trading is mostly influenced by specific factors, such as supply and demand of a given commodity or trend changes associated with business sectors. Forex trading on the other hand is mainly driven by global events, like large employment shifts or international political changes.

    To learn more about trading CFDs and trading forex, see our free trading guides.

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