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What is a CFD?

CFD stands for contract for difference. The advantage of CFD trading is that no real securities or other financial instruments are traded, but an underlying asset (base value) that the broker can offer at a price that allows traders to buy otherwise unaffordable financial products_cc781905-5cde-3194-bb3b -136bad5cf58d_trade. In this way, a CFD trader can buy larger amounts of assets, which also allow for high profits if the forecast is correct.

For example, Amazon stock costs several hundred dollars, but you can buy it for a much smaller amount with leveraged CFDs.

History of CFD trading

CFD trading is a relatively new financial instrument, developed in the early 1990's by UBS Bank in London to avoid UK stamp duty. Only a few years later, CFDs were also introduced to the general public and it didn't take long for this financial instrument to enjoy widespread success. The benefits of leveraged financial products were such that more and more brokers around the world started offering CFDs and today retail investors are able to take their investments into their own hands thanks to online CFD trading.

How does CFD trading work?

 

Der Forex trading  with CFDs and trading CFDs in general is uncomplicated. You simply select an underlying (asset) that you wish to trade and enter your order.
If you think the price of an underlying asset, such as Amazon shares, is going up, enter a buy order. It's just as easy to enter a sell order when you think the price of the stock is going down. This is one of the main benefits of CFD trading. Whether the price goes up or down, if you make the right decision, you'll close the trade and take profit, which is the difference between the underlying at the time you placed the order and the underlying at the time on which you closed the order.

Trade CFDs on margin

Ene of the main reasons for the increasing popularity of CFDs is the ability to trade on margin. When you trade on margin, you only need to cover a small portion of the underlying asset when you make a trade. This is known as leveraged trading. On the most commonly traded underlying assets, margin can be as low as 0.50% with leverage as high as 400:1, meaning an investor only needs to have 0.5% of the traded price in their trading account. So you can also Bitcoin trading  with lever. The advantage of leverage is obvious. An investor can open a much larger position than they could afford without leverage, increasing their potential profit.

However, it is important to remember that just as leveraged trading can magnify profits, it can also result in large losses.

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