CFDs are a useful financial tool that allows you to trade and potentially profit regardless of whether the underlying company makes a profit or loss. CFD stands for Contract For Difference and involves an agreement between two parties to exchange the difference between the opening price and the closing price of a contract. Crucially, they are considered a derivative asset which means you are not required to own the underlying asset you are trading on. This allows for a greater degree of flexibility and shields you somewhat from poorly performing assets.
CFDs are leveraged products, which mean that you can trade on contracts worth more than what you pay. This allows you to potentially significantly boost your investment income on successful trades without having to put up a large portion of money up front, but it does come with significant risks. Conversely, you can end up owing far more than what you pay if your trade is unsuccessful and results in a loss. Therefore, leveraged products must be dealt with carefully and it’s important to fully understand the risks before beginning trading. With correct knowledge and understanding, however, you can profit on financial news with CFDs.
Market analysis is very important to successfully trading on financial news with CFDs and you will need reliable sources. Websites such as CMC Markets offer an excellent overview of the financial market and gives you the opportunity to analyse your trades against current market news and make optimal trading decisions.
An example of a successful trade using CFDs would be using financial news to analyse and identify a company whose price you believe is likely to rise. You don’t buy shares with CFDs; instead you buy ‘units’ which are linked but do not involve any ownership of the underlying assets. You purchase CFDs at a stated buy price like any other asset and can trade on margin, so you only have to put up a fraction of the value of your CFDs. In a successful outcome where your prediction is correct and the price rises, you can sell your CFDs at the raised sell price. Minus commission, you have successfully made a profit trading on CFDs using financial news. Likewise, you can also short your position if you believe that the price is likely to fall in the near future.
Having reliable financial news sources is paramount to successfully trading with CFDs because the value of underlying assets can quickly rise and fall. Having up to date information is critical in order to make the best educated decisions when it comes to trading. Keeping informed on current market trends and financial news can allow you to optimally use CFDs as another financial tool in your belt in order to capitalise on market movements and increase the value of your investment portfolio. Once you understand what CFDs are and how to use them, you will find them an incredibly useful financial tool that allows you to profit on assets without having ownership of them.