Tuesday, 23 January 2007

What Are CFDs

traders use cfd, short, long stocks online

In the last few years the Stock Market players have become more adventurous with their money in the sense that they are no longer happy with making 10 to 20 percent profit on their initial outlay by just simply buying the shares in the companies of their choice in the normal way which they used to.

Instead, what some of these people have been doing has been using a means which allows them to buy or sell Stocks, Indices or even Commodities on margins with high leverage. For instance, if one is trading the UK stocks with a UK broker, to enter into a deal, he or she will only need to have 3% of the total transaction available in the his/her account. For trading the indices, the leverage is even bigger; 1% only is needed to open a trade, which could be really great if you know what you are doing.

For those who are not familiar with this type of trading; this method of trading is called CFD, short for Contracts For Difference.

When using CFD
you can actually SELL the instrument you do not own. They call this going SHORT and when a short position is taken, the trader is hoping for a fall in the price of the stock so he can close the position by buying the stock back in order to pocket the DIFFERENCE. Hence, the name CFD. Buying is termed as going LONG in CFDs.

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