Trade Tools > CFD Trading > Intro to CFD
CFD stands for Contract For Difference, and this is a popular investment vehicle for traders. Individuals can participate in security and index price movements without having to take ownership of the security or physical goods involved. CFDs are similar to trading stocks on margin or investing in a futures contract for an individual security, and they allow efficient market participation.
CFDs utilize leverage so that a trader can get maximum exposure to the market with a small initial capital outlay. CFD trading allows NoaFX clients to trade in commodities, companies, currencies, and indices across many markets with a single trading account. Traders can exchange the difference between the opening and closing price of the CFD in cash.
CFD trading allows individuals to trade on the financial instrument price movement, whether this movement is expected to go up or down. Whether the result is a profit or loss depends on the difference between the purchase price and the selling price of the vehicle being traded. You may pay a percentage of the value of the vehicle and still have the same profit or loss as if you completely owned the instrument.
Trading CFDs means that the deposit amount required is only a small percentage of the overall trade value. Smaller margins mean greater leverage, and this allows traders the potential to increase profits. Losses with CFD trading are also increased as well though. Traders should utilize stop loss orders, take profit orders, and other risk management tools to control the risks taken. Minimal margins with CFDs usually run between 1% and 15%, and this can be a considerable amount of leverage.
CFDs can offer traders numerous benefits and advantages over traditional stocks and futures contracts. Traditional stock trading may require larger amounts of capital, and it is not always possible to go long or short, so a failing market could mean losses for stock traders but this does not have to be true for CFD traders.
Futures contracts have a fixed date of expiration while CFDs do not, and CFDs are considered more flexible and they offer more transparency. There have been concerns voiced about traders who are not professionals trading CFDs because of what this entails though.
NoaFX never recommends that our clients trade CFDs unless these clients already have market experience with financial vehicles. CFDs can be highly complex and they offer a large amount of leverage, so inexperienced traders could face large losses. Individual traders should never trade any instrument that risks more than the trader can afford to lose. NoaFX also does not recommend full leverage with CFDs because of the risks involved.
NoaFX offers its clients CFD trading opportunities as well as access to the Forex market. Our clients have the ability to trade a variety of CFD vehicles within the NoaFX MetaTrader4 platform, and these include indices and spot metals.
CFD trading used to be a product for institutional trading alone, but that is no longer true. Today CFDs can be traded on the retail market, offering traders of all sizes an alternative to trading shares that is very cost efficient and incredibly flexible. NoaFX clients can benefit from investment vehicle capital gains without having to actually take possession of a security or physical good.
CFD offering by NoaFX allows clients to engage in speculation which may be difficult or even impossible otherwise.