By Kim Dawkins
There are so many ways of trading that deciding between them can be challenging. CFDs are a popular method of trading.
Contracts for Difference (CFDs) have been in use since the early 1990s. CFD is where two parties (a buyer and a seller) agree to exchange the difference between the opening and closing price of a contract. It isn’t necessarily a prerogative of the trading room floor. Last year the Neart na Gaoithe offshore wind farm struck a deal with the National Grid. They were awarded a 15 year CFD subsidy meaning that their production of electricity had a strike price linked to the rate of inflation.
Considering how political events can affect the commodities on which CFD trading is based is as good a way as any of explaining the concept.
Let us suppose that our trader looking at the US presidential elections exit poll considers that Donald Trump will win. They find a company Acme Products which has 90% of its export trade with the USA. The trader decides that this is going to negatively impact on the share price of the company and so sells 1000 share CFDs at the current price of 1430p.
Three or four things can happen.
So what is the difference between CFD trading and trading in ordinary shares?
How does our novice trader then work their way through this labyrinth? A reliable broker, such as CMC Markets has a wealth of experience in working with different market conditions. A broker can guide you to what is the best product for your individual needs and circumstances. A reputable, experienced broker can use that experience to provide a continuity of advice which is built on a knowledge of both the client and the market.
A brokerage service doesn’t entirely remove the risk from CFD trading but providing resources such as trading charts and other methods of research can provide some basis for a more assured trading.