What are CFDs?

What are CFDs?

Contracts for Difference (CFDs) are financial products that allow traders to invest in various assets without actually owning them.

You can trade CFDs in a number of products, including indices and commodities, such as oil and gold. Because you are not the owner of an instrument, you will not be bound by any contract terms, or need any rights or obligations. This means you can invest solely on whether you think an asset will appreciate or depreciate in value.

To make a profit, you just need to sell the item at a higher price than when you bought it. Of course, you will have made a loss if you end up selling it at a lower price.

Why trade CFDs?

An important advantage of trading CFDs is that it is similar to a form of insurance. You can use CFDs to hedge your trades and minimise risk.

Certain assets, Gold in particular, are seen as “safe havens” in times of market turbulence. If the economy is ever uncertain, you will be more likely to see traders abandon more volatile assets like Forex, and seek refuge with CFDs instead.

For many people, CFDs will also be exempt from stamp duty, meaning you can trade them with far less capital than if you owned the asset. Remember that using leverage can also greatly increase your losses, as well as profits, so you should always use this tool with care.

Expiry and rollovers

Some CFDs will have a set date at which they expire. In these situations, traders will have to ensure they close any open positions before this date.

With TradeFred, all of our CFD contracts are spot (cash) prices that will not expire. This means you are free to keep your positions open as long as you wish.