Published on February 24, 2014
What is Contracts for Difference? CFDs or Contracts for Difference are financial instruments that has gained huge popularity in Asia over the past few years. It was formed in early 80's and named as 'equity swap'. Contracts for Difference are an agreement between the seller and the buyer that the seller will have to pay the difference between the value of the asset at the time of entering into the contract and at the end of the contract to the buyer. Or receive the amount from buyer if the difference is negative. A CFD does not have volatility premium or time value. It is just one for one equity swap. Like equity swap, CFDs are OTC, meaning the contracts can be customized as per the needs of the individual and exchange fee can also be avoided. However, selling may be difficult if one cannot find a seller for a CFD. One of the features of contracts for difference is that it can be traded on margin and requires very little fund to get started. Another advantage is its ability to reap the benefits of downward trends pretending a short position. The traders like the prospects of CFD business. They get commission from trades.
Contracts for Difference are popular among the traders to an extent that the Australian Stock Exchange has listed exchange traded CFD's. Moreover they are also diversifying their products and earn exchange fee for each trade also. Since CFD's are marginable, there are two types of margin with all margin trading – initial and variable margin. Variable margin is mostly set at a particular range with stocks however a fixed percentage is not necessary with marking-to-market and Contracts for Difference. There are several factors to be considered when you start trading Contracts For Difference make sure that you have clear knowledge of the risks and know how to minimize them by implementing proper stop loss orders. It is also advisable that before starting trading for real money, you can try some of the on line trading simulators. These are absolutely free of cost and give you a fixed amount of play money to be used. It helps you to understand how to make use of historical data, current market trends and how to use proper stop loss orders, etc. About Trading Lounge Trading Lounge is an online trading, analysis and education service that offers services such as Day Trading, Trading Strategies, Technical Analysis, and How to Trade advice by a reputable and experienced trading coach. www.tradinglounge.com.au/ was started by Peter Mathers in 1982 to meet the growing demand of accessible and sensible education in online trading. For more details, 480 Strongs Road, Jasper Brush Berry, NSW 2535 Phone: (02) 4448 6020 Petertradinglounge@gmail.com www.tradinglounge.com.au
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