Every week we provide insights into popular assets and hot questions, so you can easily learn more about the investment market in bite-sized pieces.
In this Markets in Focus we take a closer look at CFD trading. What does it mean and where does it come from?
What is trading in CFDs
CFD trading is a fast and efficient way to benefit from the rise or fall of the price of multiple assets such as shares, indices, currencies, commodities and even crypto.
CFD trading explained
Your trade follows the price of your chosen asset up or down.
What is important to know about CFDs is that you do not actually own the asset you are speculating with.
The CFD simply follows the price and offers you the opportunity to make a profit (or loss).In other words, you can trade Apple’s price movements without actually having to buy Apple shares.
The CFD is essentially a contract between you (the buyer) and us as the broker (the seller).
Example of a CFD trade
Suppose you think that the price of Apple is going to rise.
You then buy a CFD at Apple’s current market price of $ 170. You are now entering into a contract. At the end of that contract, you exchange the difference in value of the opening price and the closing price (hence the name: ‘contract for differences’).
Now suppose you were right about Apple, and the stock rises in value to $ 200.You keep the $30 difference. But if you were wrong and the stock price drops to $ 140, it’s up to you to pay the difference of $ 30..
With Change you trade with leverage that can accelerate your profit but also loss opportunities. Read more about this in our earlier edition of Markets in Focus here.
Where do CFDs come from
CFDs were invented in England in 1990 by two UBS bankers, Jon Wood and Brian Keelan.
They were initially used by hedge funds to give them easy access to shares on the London Stock Exchange without having to buy physical shares.Today we have seen this evolve in trading apps like Change’s.
Try out CFD trading with Change app. Download app.
