CFD Trading
Contracts For Difference
What Is CFD Trading?
CFDs (Contracts for Difference) are financial derivatives for speculating on the long or short price movement of an asset. Their value tracks the underlying asset. CFDs offer advantages over direct asset trading, such as lower costs, leverage, and diversification.
Example:
Imagine the initial price of Apple stock is $100. You conclude (buy) a CFD contract for 1000 Apple shares. If the price increases to $105, the amount of the difference, which is paid to the buyer by the seller, will be equal to $5,000. And conversely, if the price falls to $95, the seller will receive the price difference from the buyer equal to $5,000. The contract does not imply physical ownership or purchase/sale of the underlying shares, which allows investors to avoid registering ownership rights for the asset and associated transaction costs.
How Do CFDs Work?
Trading Timeframes and Contract Expiry
Spot Market CFDs
These are based on the immediate, real-time price of an asset. They are generally open-ended and do not have a fixed expiration date. They incur overnight funding charges if held open.
Futures CFDs
These are based on futures contracts and are typically used for medium to longer-term trades. They have a specific expiry date and do not incur overnight funding charges.
How to Trade CFDs?
CFD trading allows you to speculate on price movements in either direction:
Long (Buy) Positions
If you anticipate the price of an asset will rise, you open a "buy" position. You profit if the price increases and incur a loss if the price falls.
Short (Sell) Positions
If you anticipate the price of an asset will fall, you open a "sell" position. You profit if the price decreases and incur a loss if the price rises.
Types of Margin
Initial Margin
The amount required to open a new position.
Maintenance Margin
The minimum amount of equity required to keep a position open. If your account balance drops below this level, your broker might make a "margin call." This could cause your positions to close automatically.
CFD Trading Markets
Asset classes available for CFD trading include:
Standard Account
- 100+ tradable instruments
- Fast market execution
- Multiple order types
- Denominate in USD/EUR/GBP
- Spread from 1.2 PIPs* EURUSD
Minimum Deposit $50
Premium Account
- 100+ tradable instruments
- Premium execution with bank, brokerage, and client liquidity
- Denominate in USD/EUR/GBP
- Spread from 0.0 PIPs* EURUSD
Minimum Deposit $500
Is CFD Trading Profitable?
Primary Trading Costs
Spread
Difference between the "buy" (offer) price and the "sell" (bid) price
Commission
Fee charged to open and close a position
Overnight Funding (Holding Costs)
A fee charged for holding a spot CFD position open past the daily cut-off time
How To Manage Risk?
Risk Management Tools
Stop Loss
Automatically closes a position at a predetermined level of loss.
Trailing Stop
A stop-loss order that moves with the market as your position becomes more profitable.
Guaranteed Stop
This guarantees that your position will close at a set price.It protects you from market gaps, often for an extra fee.
Close at Profit (Take Profit)
Automatically closes a position at a predetermined level of profit.
Hedging With CFDs
Hedging is a strategy where CFDs are used to offset potential losses in an existing physical portfolio.
For example, if you own shares that might lose value, you could open a short CFD position on that stock.If the stock price falls, the profit from the CFD may offset the loss on your physical shares.
CFD vs Futures
CFDs and traditional futures contracts differ significantly.
Traded On Regulated Exchanges
CFD Spot
Futures Contracts
Over-The-Counter (OTC) Trading
CFD SpotFutures ContractsClearinghouse Counterparty Risk Management
CFD SpotFutures ContractsBroker-Dependent Counterparty Risk
CFD SpotFutures ContractsStrict Regulatory Oversight
CFD SpotFutures ContractsFlexible Contract Sizes
CFD SpotFutures ContractsStandardized Contract Specifications
CFD SpotFutures ContractsFixed Expiration Date
CFD SpotFutures ContractsIndefinite Holding Without Expiry
CFD SpotFutures ContractsOvernight Financing (Swap / Rollover)
CFD SpotFutures ContractsOne-Time Commission Cost Model
CFD SpotFutures ContractsPhysical Delivery At Settlement
CFD SpotFutures ContractsCash Settlement Available
CFD SpotFutures ContractsCentralized Exchange Pricing
CFD SpotFutures ContractsBroker-Derived Pricing
CFD SpotFutures ContractsIndices Trading
CFD SpotFutures ContractsCommodities Trading
CFD SpotFutures ContractsForex Trading
CFD SpotFutures Contracts
| Feature | CFD Spot | Futures Contracts |
|---|---|---|
| Traded On Regulated Exchanges | | |
| Over-The-Counter (OTC) Trading | | |
| Clearinghouse Counterparty Risk Management | | |
| Broker-Dependent Counterparty Risk | | |
| Strict Regulatory Oversight | | |
| Flexible Contract Sizes | | |
| Standardized Contract Specifications | | |
| Fixed Expiration Date | | |
| Indefinite Holding Without Expiry | | |
| Overnight Financing (Swap / Rollover) | | |
| One-Time Commission Cost Model | | |
| Physical Delivery At Settlement | | |
| Cash Settlement Available | | |
| Centralized Exchange Pricing | | |
| Broker-Derived Pricing | | |
| Indices Trading | | |
| Commodities Trading | | |
| Forex Trading | | |
Why Trade CFDs With Neex?
Leverage
Control a large position with a small initial deposit.
Flexibility
Potential to profit from both rising and falling markets.
No Ownership Burdens
No need for physical storage of assets.
Hedging
Offset potential losses in an existing investment portfolio.
Extended Hours
Access to markets outside regular exchange hours.