Learn what bid prices mean and what they do in CFD trading

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Last updated: 19 March 2020

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If you’re an experienced trader or just curious about the industry, chances are you would have heard of contracts for difference (CFD) trading. CFDs are derivative investment products where a trader can speculate on the price movements of stocks, commodities or market indices.

Because you’re trading a contract, rather than owning the underlying asset, CFD traders can profit regardless of whether prices are going up or down. For that reason, CFD trading often becomes more popular during times of market volatility, as traders seek to profit by ‘shorting’ the market when it falls.

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What is a CFD?

A contract for difference (CFD) is an agreement based on an underlying asset or financial instrument such as a share, commodity or currency pair. In the contract, you can decide if you believe the underlying asset will increase or decrease in value between the time the contract was initially opened and when it is closed.

It’s important to understand clearly from the outset that at no point do you own the underlying asset itself, nor are you trading the underlying asset either. You own the CFD, or contract, which is provided to you by the CFD provider.

Why trade CFDs?

  • CFDs allow you to speculate on thousands of financial products and global markets which you may otherwise be unable to access.
  • You can go long or short, hence you can benefit in both rising and falling markets.
  • You can usually access free demo accounts, plus charts and trading tools through your broker.
  • Unlike other types of derivatives, CFD contracts don’t have a fixed expiry date, meaning you can close out your position (in other words, end the contract to realise a profit or loss), when you decide.

How to select the best CFD trading platform

The CFD broker you chose will very much depend on your trading style and what instruments or assets you prefer to use. If you’re looking for the best online platform or app for you, consider the following:

  • Available markets. Does the broker offer forex, gold, silver, cryptocurrency, stock market indices, global stock CFDs, ASX200 CFDs
  • Direct share CFDs. Not all brokers offer CFD trading on shares, and some that do charge an additional subscription fee to access them
  • Currencies. If you’re looking to trade forex, check whether your preferred pairings are being offered
  • Commission fees. There’s often a brokerage fee charged when trading stock and stock index CFDs, check it’s not too high
  • ASX live data. Does it charge a fee to access live stock market data from the ASX and other stock market indices?
  • Minimum opening balance. Some brokers require a high minimum opening balance before you start trading – consider trialling the demo version first if it has one
  • Platforms and software. Which trading platforms do they offer and can you add-on software or analytics tools such as PsyQuation?
  • Other types of trading. Do you also want to invest directly in shares, ETFs, forex or managed funds?

What can you trade with CFDs?

Some of the most common markets you can access with CFDs are shares, indices, commodities like oil or gold, metals like copper and forex in the form of currency pairs.

However, you’re not limited to these. CFDs allow you speculate on many more markets like bitcoin and other cryptocurrencies, government bonds and even big events such as national elections. If you want to trade CFDs, you need to fully understand how the CFD itself works as well as the underlying asset. If you have no experience trading shares, for example, it may not be a good idea to buy a shares CFD.

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What are the risks?

CFDs are extremely risky, complex products and are ideally only suited to very experienced financial traders. Here are some of the potential risks that you should know about before deciding if CFD trading is right for you.

  • CFDs are complex. CFDs are very intricate and confusing products. Even if you have a general understanding of what a CFD is, this doesn’t mean you’re ready to start trading CFDs.
  • You can lose more than your initial capital. If you gamble on the pokies, the most money you can lose is the amount you put into the pokie machine. This is not the case with CFDs. If you lose a CFD trade you can lose much more money than you started with, meaning you actually owe the CFD provider money, sometimes hundreds of thousands of dollars.
  • You don’t own the underlying asset. When trading CFDs all you own is the contract between you and the CFD provider. Therefore you can’t benefit from the capital growth of the underlying asset over the long term.
  • CFDs depend on how the market performs. Even though you don’t own the underlying asset, CFDs are still affected by market conditions. This can increase risks even more in a volatile market.

How to decide if CFDs are right for you

Due to the complexity and high level of risk involved, CFDs will not be suitable for the vast majority of traders. CFDs could be right for you if you:

  • Are an experienced trader
  • Have a strong understanding of not only CFDs but many financial products and markets
  • Possess a high tolerance to risk, and are not at all risk-averse
  • Can afford to lose quite a bit of money (it’s not guaranteed that you will, but you need to be comfortable you can afford to lose if you did)
  • Have some level of legal expertise to understand the complexity of CFDs
  • Are not interested in owning the underlying assets
  • Understand the measures available to minimise your risk and are experienced using these tools, for example stop-loss orders
  • Have conducted plenty of research – trading CFDs is not a decision that should be taken lightly

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Wait, I still have more questions!

What’s the difference between investing in shares and trading in CFDs?

When you trade CFDs, you never own the actual underlying asset; instead, you bet on its price movements. In short, what you actually purchase is a contract. When you invest in shares, however, you buy and sell the shares themselves.

What underlying assets can I buy or sell CFDs on?
  1. Some of the underlying assets that you can trade CFDs on include Australian and international shares, indices, commodities, foreign exchange and treasuries.
I’m a casual investor – should I start trading CFDs?

Trading CFDs is not recommended for casual investors. Because of the specialised knowledge required and high level of risk involved, this type of trading is best left to expert investors.

But I can only lose the money I invest, right?

Wrong. Because you are trading with leverage, it’s possible to end up losing significantly more than your initial investment amount.

How do I know which CFD trading platform is right for me?

The best way to find a good trading platform is to do plenty of research. As well as right here at finder.com.au, you can find plenty of useful information on blogs, forums and the websites of individual providers. Examine the features and benefits each trading platform offers and open a demo account if possible to try before you buy.

Will a CFD education seminar teach me everything I need to know?

While you can certainly learn useful information at a training seminar run by a reputable financial or training organisation, attending a course is by no means all you need to fully prepare you to trade CFDs.

I’m looking for a steady investment – is this something trading CFDs offers?

No, CFD trading is risky and far from a steady investment option. If you’re looking for safe and secure returns on your money, consider other investment opportunities.

I’ve read about ASX exchange-traded CFDs – what are they?

ASX exchange-traded CFDs are CFDs that are listed on the Australian Stock Exchange (ASX). With terms and conditions set by the ASX, these are slightly less risky to trade than other CFDs and can be traded through brokers that have been authorised by the ASX. Note that these are no longer offered by the ASX, as of 2 June 2020.

Will I receive dividends?

When you buy shares in a company you are usually entitled to dividends, and although trading CFDs means you never actually purchase shares, you can still take advantage of some of the benefits of ownership. When you buy a CFD, your trading account will be credited with a certain amount of money that reflects the dividend amount an ordinary shareholder would receive. When you sell a CFD, your account will be debited a similar amount which will be paid to the counterparty.

Is there a minimum investment amount?

No, there is no real minimum limit when you trade CFDs.

How do I trade?

The exact process for buying and selling CFDs will vary depending on the trading platform you choose. Contact your trading platform operator for detailed information and instructions.

Is there a minimum deposit amount to open an account?

Yes there is, but this differs between trading platforms. A commonly quoted minimum limit is $5,000.

Beginners Guide to CFD Trading

Beginners Guide to CFDs Trading

If you are a forex trader who is searching for information on how to broaden your trading skills to include other financial instruments. We have compiled an all-inclusive CFDs guide that will educate anyone who is new to the market. Every currency quote commonly comes with a selling price on the left and a buy price on the right. The profit you make as a trader is the difference between the price you enter the market and the time which you exit the market.

What is a CFD?

A CFD, or contract-for-difference, is a financial instrument or asset that lets traders make gain from price fluctuations rather than from actually acquiring an asset. It’s basically an agreement between two people to pay the difference between the current price of the underlying asset and the price it will be at the time the trade is closed. The underlying asset could be stock, index, FX pair or commodity.

CFD is a derivative product which gets its pricing from the underlying asset it is tracking.

Let’s assume that you want to trade the National Australia Bank (ASX: NAB) and the present ASX stock price was 50 dollars; then the CFD would as well be quoted as 50 dollars.

The contract of difference on NAB will try to always replicate the price performance of the underlying stock.

Standard stock trading and CFD trading are related apart from the fact that you are required to deposit only a small amount of money before the trade. Other minor differences between the two include CFD finance and CFD leverage. If you are looking to trade CFD, it is essential that you properly weigh your risks before you dive into the market.

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Can traders who are starting out trade CFDs?

If you are just starting out as a trader, you may be wondering if CFD trading is suitable for you. The first thing you need to do before trading any financial product is to have a thorough knowledge of that product and how it works.

Therefore, to trade a CFD, you must know the associated risk and what your benefits are likely to be if you start to trade the asset.

Who owns the CFD or stock?

When you trade Contracts for Difference, you aren’t really the owner of the physical stock. Also, you won’t be given a contract letter the way it works when doing a standard trading of shares.

All you are doing is merely trading the price difference between the entry price and the exit price.

Key reasons people trade contracts for difference (CFDs)

There are a few reasons people go for CFDs instead of the normal share trading. These reasons have been presented below:

  1. To gain from short-term price fluctuations in the stock, index or commodity markets.
  2. To trade with the leverage offered by the CFDs. Sometimes traders have a leverage of 100 to 1 or even higher leverage when the trade involves Forex, Index and Commodity products.
  3. To serve as a hedge for your real share trading portfolio. A number of people make use of the CFDs for managing their risk instead of serving as a speculative trading opportunity.
  4. CFDs let you have access to the international stock markets from a single trading account.
  5. CFDs frequently come with a lower cost of trade commissions or cost of trade with a broker. For instance, brokers in Australia charge as small as 5 dollars to let traders access an Aussie Share CFD trade.
  6. CFDs allow you to take advantage of short selling. This implies the trader can gain from short trade opening if the position value falls. Alternatively, if your short trade price increases, it would put you in a losing situation.

7. A contract for Difference trading also gives traders access to dividends and come with no expiration time as in options trading.

Comparing CFDs with other financial instruments

Trading CFDs comes with a broad list of assets to choose from the same way it is in options and futures trading. Popular assets traded as CFDs include stocks, commodities, and indices. Because they depend on the prices of an underlying asset, trading CFDs also exposes the trader to the market risks. Trading CFDs comes with leverage advantage. However, you also need to know that at the same time it exposes you to liquidity risk and may lead to margin calls.

Trading CFD is not the same as spot trading because CFDs let you trade other financial assets in addition to currency pairs while in spot trading the trader only deals with currency pairs. The implication of this is that the factors that influence the market situation in forex trading like economic events, technical breaks and so on may have less influence when you trade CFDs.

Options trading are more closely related to CFD trading. However, one of the main differences between trading Contract for difference and option is that options trading come with expiry dates while CFDs don’t. The amount a trader loses in options trading like CFDs is merely the amount of money paid in option premium.

Who can trade Contract for Difference?

You can commonly trade CFDs as long as you are more than 18 years old, also other countries may have different age restrictions. However, you need to bear in mind that trading a leveraged product like CFDs are very risky as it can leave you with a loss that is much higher than the amount you began with. Thus, CFDs may not be a suitable instrument for everybody.

For, this reason, it is very important that you fully understand the risks involved before you start to trade this financial instrument. Also, endeavor to read the pertinent PDS and the disclaimer of the company you want to trade under their platform. With this important note out of the way, yes, there are many categories of people that can trade CFDs and these include:

  • Investors who want to hedge their existing share portfolio
  • Traders of all types both short-term traders, medium-term traders or long-term traders
  • Those who engage in intraday trading
  • Traders who use swing trading strategies

• Practically anyone who wants to take advantage of price fluctuations in the financial market whether long or short.

How to trade CFDs

In this part of the guide, we have provided a brief overview of steps involves in CFD trading:

  1. Select a financial instrument

Your first step to CFDs trading is to decide on the financial asset you want to trade like the XAU/USD or UK 100 etc. Some brokers offer traders with CFDs across a broad range of global financial markets which includes forex, indices, commodities, shares, and treasuries.

  1. Decide whether you want to go long or go short

Going long simply means buying. You buy when you feel that the price of the CFD will rise. Alternatively, you can go short or sell if you think the asset price will fall.

This step requires you to decide on the number of units you plan to trade. The value of a single CFD differs considerably. The price depends on the CFD instrument.

  1. Develop risk management plan and implement it

Choose from a collection of stop-loss orders, which needs to include guaranteed stop-loss orders (GSLOs). GSLOs functions in a similar way to the standards stop loss orders apart from the higher premium. Using the guarantee stop-loss order ensures that the broker closes you out of trades at the exact time you set irrespective of the volatility of the market or gapping. The trader would be refunded the premium if the GSLO is not implemented. But this guarantee is not with every broker, it is best to find out if your broker offers Guaranteed-stop-loss orders.

After placing your trade order, the next thing you need to do is to monitor how it is doing. Keep an eye on your open positions and remember to watch your stop orders or take-profit orders. This enables you to track your real-time profit or loss. Bear in mind that your losses in CFDs can be more than your deposit because of the high leverage. Some brokers offer Negative balance protection for these rare and unforeseen situations.

This is the last step of your CFD trading. If you don’t automatically close your trade with either stop loss or take profit or if for any reason, it is not initiated by the system, manually close your trade and exit the market when you deem necessary.

What Is CFD

CFD stands for Contract For Difference and is a type of security that allows two parties to exchange between themselves the difference in opening and closing prices of any contract. CFD trading allows a trader to speculate based on the rise or fall in prices of different global financial markets. CFDs are used for trading Forex, indices, commodities, shares, and treasuries. The contract is settled using cash, instead of physical delivery of securities and thus, it is easier to settle. This aspect secures lower commission rates, more favorable tax conditions and the ability of clients to speculate on declining prices.

CFDs are offered across numerous regulatory jurisdictions such as Australia, Canada, Cyprus, France, Germany, Hong Kong, Ireland, Japan, Singapore, South Africa, Spain, Sweden, Switzerland, United Kingdom, and New Zealand. They are not permitted in some other countries, like the United States, where retail investors can not trade CFDs due to regulatory restrictions on this instrument. Instead, U.S. traders are forced to trade the futures markets, where the margin requirements to open a position are much higher and sometimes unattainable for the average retail investor.

Benefits from Trading CFDs

Below we listed the benefits that a trader can make use of from trading CFDs vs. conventional means of trading:

Trade with leverage

Trade on leverage

CFD contracts provide access to leverage, which allows investors to generate higher returns with a relatively small initial deposit. However, leverage can also magnify losses to the point where those exceed the initial deposit. Traders should be mindful of this risk. The typical leverage is 25 times the deposited amount, and this means that a trader that holds a position worth $100,000 only needs to deposit $4,000 into his/her CFD trading account.

Low Fees

Trading costs of CFD trading are lower than traditional investing or trading as the investor is not buying the actual underlying financial asset, rather the investor is speculating on the price change. For its clients, Amana is only charing the spread between the bid and the ask price. The spread is derived from the underlying market, as most CFD brokers add a markup to it.

No Stamp Duty

Trading in CFDs does not include any stamp duty since these types of contracts are a replica of the underlying product such as a futures contract or a share. Therefore, investors who choose to trade CFDs will avoid the tax liability that they would incur by trading in the underlying instrument.

24/5.5 Markets

Last but not the least, trading in CFDs takes place 24 hours a day, five and a half days a week. Even if the underlying market remains closed, a trader can sometimes still trade CFDs.

CFD Trading:
What is it
and how does it work?

Understand the mechanics and advantages of trading CFDs

Trading is risky. Your capital is at risk.

What are CFDs?

CFDs are popular financial instruments which are key components of a trader’s portfolio. However – and particularly for traders at the start of their trading journey – it can be difficult to fully understand the advantages and disadvantages of investing in and trading CFDs.

For that reason, FXTM has created a guide to CFDs, answering the big question, ‘what is CFD trading?’ In this guide, we will be taking a balanced look at trading CFDs, giving you access to all the information you need to decide whether it’s the right instrument for you, and how these assets can be tailored to suit your trading style.

Contracts for Difference

The term CFD stands for contract for difference which are a type of trading instrument and a popular gateway for investors to enter the financial markets. They are offered by brokers alongside other types of common assets like forex, commodities and spot metals. Unlike these however, CFDs are a form of derivative trading. This means that they derive their value from the movement of an underlying asset.

Engaging in a Contract

When traders choose to trade CFDs, it means that they are engaging in a contract between themselves and the broker. The trader – the “buyer” – and the broker – the “seller” – agree to a contract which speculates on the price of an asset in market conditions. While the trader speculates on financial instruments, it is important to note the main distinction between CFDs and traditional trading:

CFDs allow traders to trade price movements without actually owning the underlying asset. By not owning the underlying asset, CFD traders can avoid some of the disadvantages and costs of traditional trading.

What is CFD Trading?

So, how exactly does this contract work? Essentially, profit and loss are calculated by looking at the difference in price between when a contract is entered and when it is exited. That means that the broker – or ‘seller’ – who enters into this contract with you will pay you the difference between the price at the beginning of the contract and the price at the end. If a loss is made, the trader – “buyer” – will pay the broker the difference.

The key calculation to work out your profit or loss is: the difference between the price at which you enter and the price when you exit, multiplied by your number of CFD units. CFDs are available across a huge range of markets. With FXTM for example, CFD traders can choose from CFDs on shares, indices, commodities and cryptocurrencies, and enjoy several advantages over trading these instruments directly. To find out more about the individual CFDs on offer, you can visit FXTM’s detailed contract specifications page.

Find out about the advantages of trading CFDs in our video:

Trading is risky. Your capital is at risk.

How to Trade CFDs

Trading CFDs with an experienced broker is a simple process. Once you have opened your trading account, you’re just a few steps away from selecting your instrument and starting to trade. Don’t forget – you can always try out your CFD trading preferences using a Demo account to ensure you’re comfortable with your chosen instrument before you enter the live markets.

Choose your instrument

Between share CFDs, cryptocurrency CFDs, index CFDs and commodity CFDs, choosing your underlying asset is an important choice. Not sure which to choose? Check out our beginner’s guides to forex and forex trading for a broad overview of the underlying assets you can choose from. Alternatively, discover which markets are hitting the headlines by following the latest market analysis reports and videos.

You can discover the particular specifics of each CFD by visiting a broker’s contract specifications page, where you can find out about instrument leverage specifics and competitive trading costs.

Choose your position

Once you’ve decided what kind of CFD you’re going to trade, it’s time to decide on your position. Put simply, if you think the price of your asset will go up you can open a long position (buy), or if you think the price will fall you could open a short position (sell).

To decide what kind of trade you want to open, you can use a broad range of indicators, charts and signals. To find out more about popular strategies and indicators, you can visit our forex strategies guide.

Next, choose the size of the position you want to open. The value of a unit of the CFD you’re trading will depend upon the instrument, so you should calculate the number of CFD units that can work best with your trading strategy.

Choose your platform

CFDs can be traded on the industry’s most popular trading platforms, including MetaTrader 4 (MT4) and MetaTrader 5 (MT5). These platforms are equipped with all the tools you need to trade CFDs, including over 50 technical indicators and charting tools. You can also trade on mobile apps, allowing you to keep track of your profits and losses in real-time, on-the-go.

CFD Trading Examples

Having established the key, basic calculation of working out your profit or loss with CFDs (the difference between the price at which you enter and the price which you exit, multiplied by your number of CFD units), let’s take a look at how this calculation can be applied in practise.

How Does CFD Trading Work?

If you think the price of General Electric stock will increase over time, you could buy CFDs on #GE with FXTM. The opening price is 31.36 and you buy one lot at this price, meaning that the notional value of your contract is $3,136.

To work out how your position has fared, you simply need to calculate the difference between the opening price and the closing price. If the closing price of General Electric stock is 31.94, for example, the difference is 0.58. This difference, multiplied by your number of CFD units, is how you calculate the profit or loss made on that particular trade.

CFD Margin and Leverage

Margin and leverage are important considerations when trading CFDs. One of the key advantages of CFD trading is that you only need to deposit a small percentage of the total trade value. FXTM CFD traders only require a margin starting from 3 percent. FXTM’s margin calculator is a useful tool to help you to manage your margin on the FXTM Standard account.

Leverage is higher with CFDs than with traditional trading. Traders use a smaller portion of their own capital when opening a position, which allows for potentially bigger returns. That said, it’s important to remember that leverage carries the same potential to increase losses as it does to boost profits. Traders can use the FXTM leverage and margin calculator to work out the specific requirements for every type of FXTM account.

CFD Markets

Enter the markets with FXTM to trade CFDs on a range of instruments. With FXTM you can trade:

Commodity CFDs

  • UK Brent oil (spot)
  • US crude oil (spot)
  • US natural gas (spot)

Indices CFDs

  • GDAX (Dax 30)
  • AUS200 (Australia 200)
  • ND100m (US Tech 100 – Mini)
  • UK100 (UK100)
  • SP500m (US SPX 500 – Mini)

Share CFDs

  • Amazon
  • Alibaba
  • Apple
  • Microsoft
  • American Express

Cryptocurrency CFDs

  • Bitcoin
  • Ethereum
  • Litecoin
  • Ripple

CFD Trading Accounts

FXTM have a range of trading accounts on offer for CFD trading. These are suitable for both beginner and advanced traders alike, and come with an array of competitive leverage and margin requirements. Discover more about each main account type below:

Standard Account

  • Tight floating spreads
  • Instant execution
  • Hedging allowed

Cent Account

  • Tight floating spreads
  • Instant execution
  • Fixed leverage 1:1000

Shares Account

  • 180+ US Shares
  • Fixed leverage 1:10
  • No commissions

ECN Zero Account

  • Tight floating spreads
  • No commissions
  • Floating leverage up to 1:1000

FXTM Pro Account

  • No commissions
  • Floating leverage up to 1:200
  • No last-look pricing

FXTM Demo Account

  • Trade with virtual money
  • Practise under real market conditions
  • Risk-free environment

Trading is risky. Your capital is at risk.

CFD Trading Platforms

MT4 and MT5 are complete with the latest charts and tools to help you advance your CFD trading strategy. With FXTM, you can use the industry’s most popular platforms to trade CFDs across shares, indices, commodities and cryptocurrencies.

MetaTrader is complete with updated tools to give you a smooth, user-friendly CFD trading experience. Discover how the latest features can improve your market understanding and analysis.

You can also trade from your mobile with FXTM Trader. This revolutionary investment app enables you to access the markets from the palm of your hand, wherever you go. Download today to manage your trades in seconds, view your trading accounts and access live currency rates.

Trading Tools

Expert Advisors

Expert Advisors are programmes which use algorithms to trade the markets. They respond to parameters you set to send out trading instructions on your behalf. This saves you time – you don’t have to manually open, modify or close your position on an asset. It’s another way that the MetaTrader platform makes it possible to fit online trading into a busy schedule.

Economic Calendar

The economic calendar is an indispensable tool for fundamental analysis. The tool displays over 500 indices and economic events clearly on the price chart. Macroeconomic indicators are updated in real time, meaning that you can keep your finger on the pulse of the markets at all times.

Strategy Tester

The Strategy Tester allows traders to evaluate their trading strategy and optimise the platform’s Expert Advisors. The tool can test over 40 characteristics and issue a comprehensive report.

Analytical Tools

Traders can choose from an expanded selection of 46 objects including Gann, Fibonacci and Elliott Wave tools.

History of CFD Providers

CFD providers give traders access to the online markets with varying margin requirements, account types and trading platforms. CFD providers are a fairly modern invention – the instrument has only been available to retail clients since the late 1990s. However they quickly picked up momentum. Online CFD providers opened the door to a host of new possibilities for traders, including adding derivatives to their portfolio. Today the London School of Economics estimates that CFD trading accounts for more than a third of all stock market trades in the UK.

Choosing a CFD Broker

When it comes to choosing a broker to trade CFDs with, it’s important to make the right choice. Traders should look for brokers who are regulated, secure and experienced, including award-winning brokers like FXTM. There are certain attributes which set FXTM apart from the crowd:

Advantages of Trading CFDs

CFDs are chosen by investors due to the wide range of advantages associated with the contracts. By not owning the underlying asset, traders can avoid several of the costs associated with traditional trading.

Higher leverage

Brokers typically offer CFDs with higher leverage than other traditional financial instruments. FXTM offers a leverage up to 1:1000* which can boost traders’ potential profits. The lower margin requirements of CFDs mean that potential returns of greater overall – however, traders should bear in mind that leverage can, of course, boost losses as well as profits.

Go long and short

CFDs grant traders the ability to go both long and short on instruments. Since the underlying asset isn’t actually owned, traders have greater flexibility and can shorten CFD trading instruments without worrying about additional costs.

Range of trading opportunities

Most brokers offer CFDs on a wide range of markets. Trading CFDs, you can enter the commodity, indices and cryptocurrency markets with FXTM – and enjoy the opportunities and advantages associated with each.

Disadvantages of Trading CFDs

While there are many benefits of CFDs, there are drawbacks that traders should bear in mind when deciding on their trading instrument.

Spread payments

Although CFDs spare traders from many of the costs of traditional trading, CFD traders are required to pay the costs of spreads. CFD traders have to pay the spread on entry and exit positions, meaning that it’s potentially harder to make small profits. The spread cost must be factored in to the calculated profits and losses resulting from CFD trading.


CFDs do not come without risks. Trading these instruments can be risky and fast-paced, and traders should be careful to have a thorough risk-management strategy in place. Placing stop-loss orders can potentially help to minimise potential losses, but do not eliminate the risks altogether.

How Are CFDs Taxed?

With regards to tax, there is no stamp duty to pay on CFDs since the underlying asset isn’t owned. However, capital gains tax still applies. Overall, tax represents one of the areas that CFDs save traders costs compared to traditional trading.

What makes a CFD trader successful?

What makes a CFD trader successful? At FXTM, we believe that a successful trader is an educated trader. Traders who gain a solid understanding of the markets and create a thoroughly researched trading strategy are likely to be more prepared to take on the live markets. That’s why it’s important for traders to make the most out of educational resources to help them build their own personalised trading strategy. It’s particularly important to create a strategy in order to minimise the impact emotions have on important trading decisions.

Take a look at FXTM’s free educational resources here.

CFD Trading Strategies

There are several popular strategies to bear in mind when trading CFDs.

Swing trading strategy

With swing trading you’re looking at assets that will likely have short-term price moves you can exploit. Leaving your position overnight attracts more risk because of the potential for unexpected events to affect the market while your attention is elsewhere. Find out more.

Day trading strategy

As the name suggests, day traders open and close trades over the course of the day, usually holding positions for only a few hours. Day trading removes the risk that occurs when you leave a position open overnight. Find out more.

Scalping trading strategy

Scalp traders target intraday price movements and aim to make very small, very frequent profits. They typically only hold positions for a few seconds or minutes and exploit small opportunities while they trade with the prevailing trend. Find out more.

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FXTM brand is authorized and regulated in various jurisdictions.

ForexTime Limited (www.forextime.com/eu) is regulated by the Cyprus Securities and Exchange Commission with CIF license number 185/12, licensed by the Financial Sector Conduct Authority (FSCA) of South Africa, with FSP No. 46614. The company is also registered with the Financial Conduct Authority of the UK with number 600475.

ForexTime UK Limited (www.forextime.com/uk) is authorised and regulated by the Financial Conduct Authority with license number 777911.

Exinity Limited (www.forextime.com) is regulated by the Financial Services Commission of the Republic of Mauritius with an Investment Dealer License bearing license number C113012295.

Card transactions are processed via FT Global Services Ltd, Reg No. HE 335426 and registered address at Tassou Papadopoulou 6, Flat /office 22, Ag. Dometios, 2373, Nicosia, Cyprus. Address for cardholder correspondence: [email protected]

Exinity Limited is a member of Financial Commission, an international organization engaged in a resolution of disputes within the financial services industry in the Forex market.

Risk Warning: Trading Forex and Leveraged Financial Instruments involves significant risk and can result in the loss of your invested capital. You should not invest more than you can afford to lose and should ensure that you fully understand the risks involved. Trading leveraged products may not be suitable for all investors. Before trading, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary. It is the responsibility of the Client to ascertain whether he/she is permitted to use the services of the FXTM brand based on the legal requirements in his/her country of residence. Please read FXTM’s full Risk Disclosure.

Regional restrictions: FXTM brand does not provide services to residents of the USA, Mauritius, Japan, Canada, Haiti, Suriname, the Democratic Republic of Korea, Puerto Rico, the Occupied Area of Cyprus. Find out more in the Regulations section of our FAQs.

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