Introduction to CFDs
Why trade CFD?
Due to the extremely valuable characteristics of high-risk, high-reward and diversified trading portfolios, CFDs have experienced a sharp rise in popularity index in recent years. Due to the inherent characteristics of CFDs that make them attractive to individual investors, the growing popularity of CFDs also brings a wider range of investors.
market move and leverage
In the major financial derivatives markets, one of the main reasons why the trading volume of CFDs can reach the first place is its price volatility and leverage. In terms of becoming a popular tool for traders, the rich returns from successful trading have made CFDs from a vague and rarely discussed product to a mainstream product familiar to traders around the world.
The CFD itself has a very high leverage ratio because it uses margin to trade. Margin trading conducted with funds borrowed from the broker during the transaction allows the trader to invest less money in the early stage, and thus can obtain greater returns through double the difference. In short, CFDs can achieve twice the result with half the effort, attracting traders of all sizes.
Similarly, CFDs may fluctuate frequently, which means that they may undergo significant price changes in a short period of time, and the interaction of leverage makes them a highly profitable trading option, which is very popular with investors.
Please note: Our services include products traded on margin and carry the risk of losing all margin. Therefore, these products are not suitable for all investors. Before investing in CFD trading, please ensure that you fully understand the risks involved.
CFDs are also popular with investors because of their unique features. Medium-term investment, especially in the commodity market, may incur huge expenses, and the fluctuation of individual assets will rarely exceed the cost-effectiveness and high profitability of CFDs. CFDs mean a lower tax burden and higher cost-effectiveness to enter the market, allowing traders to buy at a lower price, while generating significant returns-a win-win effect from the perspective of the trader.
High risk with high return
Of course, CFDs are very popular not only because CFDs are a dream investment product, high returns naturally correspond to high risks, so CFDs should always be properly vigilant. However, based on the obvious practical advantages it brings to modern traders, whether as part of an investment fund or as a personal transaction, the investment fever of CFDs has continued to increase.
Comparison of CFDs and Forex Trading
Similarities between CFDs and Forex trading
There are many similarities between CFD trading and foreign exchange trading. First, these two types of transactions involve a similar transaction execution process. Traders can easily enter or exit the market in rising and falling markets. Secondly, CFD transactions and foreign exchange transactions use similar icons and pricing methods, and are executed on a unified platform. The transactions for both products are executed in the over-the-counter (OTC) market, which operates entirely within the banking network electronically, with no physical venue or central exchange. Another similarity between CFD trading and foreign exchange trading is that the only cost of the transaction is the spread, so it is different from other types of trading tools that charge commissions and other financing fees.
The main similarity between CFD trading and foreign exchange trading is that none of the traders have actual ownership of their trading varieties. For example, when someone buys the Euro Australian Dollar (EURAUD), it does not actually buy the Euro and sell the Australian Dollar; the trader only speculates on the exchange rate. Similarly, when a trader buys a CFD on the ASX 200, the trader does not actually own the stock in the ASX index, but speculates on its basic price. In many ways, foreign exchange trading is just another form of CFD.
Differences between CFDs and foreign exchange transactions
The main difference between CFD trading and foreign exchange trading is that CFD trading involves different types of contracts, covering various markets, such as indices, energy and metals, while foreign exchange trading only provides pure currency trading. When you trade CFDs, you can choose contracts with different incremental values and currency types, depending on the country of origin of the asset. Foreign exchange trading is to use one currency to trade another currency, and always trade in a unified standard lot.
The last difference between CFD trading and foreign exchange trading is related to the basic factors that affect different markets. CFD trading is mainly affected by specific factors, such as the supply and demand of a specific commodity or the trend changes related to the business sector. On the other hand, foreign exchange transactions are mainly affected by global events, such as massive employment transfers or international political changes.