CFDs are becoming a popular choice for traders looking to trade securities and other assets. In this expert guide, we’ll teach you what CFDs are and how CFD trading works. We’ll also show and compare all the regulated CFD brokers on the market with detailed reviews for readers who want all the facts before buying. will apply

Best CFD Platform in Thailand

What are CFDs?

A contract for difference (CFD) is a tradable product that mirrors the underlying asset. When trading CFDs you are entering into a contract to buy (or sell), margin and you collect (or pay) the difference when you close a position, which Unlike buying a futures contract or CFD, it is a derivative, which means that you never own the underlying asset during a CFD transaction. It can be created to reflect almost any financial instrument or market including stocks, indices, currency pairs, interest rate products or bonds.If it moves and there is demand, you can be sure there is a CFD for it.

CFDs are generally not recommended for new traders, if you read the above paragraph and need to google some of the terms used, it is likely that you shouldn’t trade. CFDs are recommended based on understanding or leverage of profit, counterparty risks and complexity of derivative products As a rule you should only trade what you are willing to lose as CFDs are volatile and you may be liable for additional losses. Demo account and trial cost But make sure you do your research on the product and the information inside it before depositing real money into your account.

How do you trade CFDs

CFD trading robots work in a similar way to buying or selling stocks, futures or forex, except with CFDs you never have the underlying instrument, what you are trading is the difference between the prices when you enter. Enter the first trade and when you exit it, hence the name contract for difference, most CFD providers require you to skip the spread to enter or exit a position.

You want to buy 100 shares of Company XYZ because you believe the price will go up in the short term.

The current price is $10.55, the bid is $10.50 and the offer is $10.60.

  • You click buy across the spread and pay $10.60 for 100 shares
  • You use $53 margin on your position. (assuming 5% margin) instead of the $1050+ fee you would pay if you bought stock
  • The stock will quickly move to your target $11 that you decide to sell
  • You click Sell Cross Spread and get filled at $10.95 for your “100” shares.

Congratulations! You made a profit of $35 (35c per “share” x 100) from your position.

As you can see, leverage is effective. A profit of $35 on a $53 margin (66%) is a 4-5% higher ROI than the profit you would make on a base purchase, even if the total amount is less.

This is the attraction of leverage and CFDs, of course, the opposite is possible, an equal move can wipe your CFD account from all capital (and more).

Why Trade CFDs

Because CFDs are leveraged products, they have significant advantages and disadvantages over common stocks or futures.

Advantages:

  • Speculation: Since margin CFDs are often used by traders looking for short-term moves or intraday trading, they can be very expensive to hold overnight depending on the broker’s demands and Fee structure
  • Leverage: The amount of leverage available differs from broker to broker depending on the product and the market, the biggest advantage is the ROI a trader can take with CFDs compared to Common Stock As shown in the example above, you can earn 50% + ROI on the applied margin, which may be attractive to speculators who are comfortable with the risk.
  • Margin: Like Forex, CFD Brokers only require a margin between 2% and 20% depending on the instrument and volatility, allowing you to trade larger than you. It can do this or give you access to expensive stocks that you might not be able to trade, for example if you wanted to buy 100 shares in Apple at $145 you would need $14500 in your capital account along with commissions. The equivalent of 100 shares can be traded at $725 or 10 shares at $72.50. This opens up new markets and opportunities.
  • Global exposure: Most CFD providers offer a wide range of markets, you can easily trade the German DAX as well as Australian stocks, all in one account with no data or data required. Expensive processing fees
  • Fees: Trading fees can add up quickly, especially using a retail broker, there are no CFD fees, just spreads (which presents its own challenges).
  • Hedging: CFD Offering portfolio holders the opportunity to hedge long-term stock positions fast and cheap, options can be intimidating and difficult to structure, especially if you use them to hedge CFD positions. Provides savvy traders with economical options and a wide range of hedging opportunities.

Disadvantage:

  • Leverage: This is a double-edged sword, while buying 100 shares in Apple is cheaper than using CFDs, you do do so, a small movement in the underlying can negate your position or More than that makes you a red broker.
  • Spread Skip: To enter or exit a CFD position, you must skip the spread, no order. Limited, which means you will have to pay a premium to enter or exit a position, this is the price to pay for margin access, although this may not seem significant. But paying spreads can add up quite a bit of money especially if you are a trader, it also makes certain strategies difficult to execute (such as scalping).
  • Betting with your broker: CFD It is a contract with your broker, they have profit if you lose, this is a conflicting question with many interests, it is very important to research your broker, check if they are regulated. (Most of them are not) and read reviews online, contact them directly if you have any questions before depositing any money in the account.

Counterparty risk

When trading CFDs, you make a contract with your broker about the future movements of financial instruments, your trading counterparty is different from the broker, as you can imagine, this creates a lot of conflicts of interest issues and Regulators are still trying to find an acceptable balance between protecting customers from predatory practices and allowing independent traders.

Skeptics may argue that trading CFDs with your broker is like gambling at a casino, it is in the best interest of the casino that you are a happy, smiling customer… so they can finally. Take as much money as you can from you.

Believers will argue that it is in the interests of CFD brokers to gain long life from their clients and that they make enough money on spreads and volumes without incentivizing their clients to go wrong. reports to regulators, which ultimately hurts business and profits

The takeaway is that traders need to research CFD brokers and their regulations in their country, a good place to start is our list of recommended brokers.