What is CFD 2021? 8 Information About Trading CFDs
With CFD investment, you can invest in a variety of assets such as stocks, stock indices or commodities with great advantages. CFD, also known as difference contracts or difference contracts, is a derivative instrument that makes it possible to invest in related assets not physically, but based on price expectations.
CFD, which is in the class of derivative instruments, helps to profit from both the decrease and the rise of the prices compared to the investment products we are used to. Moreover, it is possible and extremely easy to invest in CFD difference contracts at very low costs.
You can invest in CFDs on the forex market. On the other hand, by taking advantage of the leverage opportunity, you can earn higher earnings with a lower capital by investing in multiples of the capital you have.
In this guide, you can learn what CFDs, also called difference contracts or difference contracts, how to invest in this product and through which platforms, and what are the advantages and disadvantages of this derivative tool.
1. What is CFD?
CFD (Contract for Difference), in Turkish difference contracts or difference contracts It is a derivative tool called. CFDs allow price expectations to be bought and sold by investing non-physical in many assets, such as stocks owned by giant corporations, the world’s leading stock indices, or commodities.
You can see that CFDs are commonly referred to as difference contracts or difference contracts, in some sources they are often referred to as CFD difference contracts or CFD difference contracts.
CFD trading is becoming more and more popular with professional traders, but just about anyone can try it out. Most brokers offer investors opportunities to invest in CFDs. Although CFD is a potentially high-risk investment strategy, you can minimize the potential risks if you understand how this tool works.
2. What Can Be Invested With CFD?
CFDs are a type of derivative that you can invest in the price of securities to go up or down. Owned by giant companies with CFD difference contracts stocks, like currency, gold and silver commodities and world famous stock market indices You can invest in a range of assets, including
We can briefly summarize the types you can invest with CFDs as follows:
- World famous stocks
- Commodities such as oil, silver and gold
- ETFs known as exchange traded funds
- Leading stock market indices such as DAX, S & P500 and Dow Jones
CFD trading provides access to more than 10,000 global markets and you don’t need high capital to start trading as every investment you make is leveraged.
Let’s explain this with a small example. For CFD spread contracts, you can take advantage of a leverage of up to 1:10. Let’s say you decide to take advantage of this leverage. This means that if you take advantage of the leverage ratio of 1:10, you can invest $ 10,000 for every $ 1000 of your capital. Moreover, even if you do not have a capital of $ 10,000, the leverage system provides you with this opportunity.
On the other hand, there is a significant difference between investing in CFDs and traditionally buying and selling securities. Traditionally, when you trade an asset, you physically own that asset, but you do not physically own the asset in CFD investment and you trade on price expectations. For example, instead of buying or selling physical gold, you only predict whether the gold price will rise or fall and invest in that direction.
3. How to Invest in CFDs?
CFD transactions are a CFD trading account or forex account can be done with. If you open a CFD trading account or forex account from any brokerage house you prefer, you can start trading CFDs immediately. So you can buy and sell price expectations for stocks, commodities or stock market indices.
If you are aware of exactly what CFD investment means and you want to start investing with this derivative tool, you can open an investment account from a brokerage firm. Opening an account with brokerage firms is free, but there is a fee known as the difference between buy and sell for each transaction. spread or commission You will have to make a payment via.
In our country, most investors prefer forex brokerage houses for CFD difference contract transactions. Because CFD difference contracts are financial products with certain maturities. On these contracts, the maturity starting date, starting price, expiration date and maturity unit price for the relevant assets are found. In the Forex market, investors can trade at instant transaction prices without having to wait for the expiry date of maturities.
4. How to Trade CFDs in Forex Market?
In the Forex market, CFD transactions can be made with an investment account you open from brokerage houses. So much so that many forex brokerage institutions in our country offer the opportunity to trade CFD difference contracts. It is possible for every investor to invest in CFDs through the forex trading platform without being subject to any bureaucratic transactions.
In the Forex market, CFD difference contracts are traded with similar market rules and conditions as for pairs, stocks or commodities. For example, trading with CFD difference contracts in the forex market is not much different from trading on other instruments.
You can quickly start trading CFDs by opening an account with a forex broker. Thus, besides buying forex shares or forex gold transactions, you can invest in commodities such as silver or stock market indices by taking advantage of leverage.
Like other forex investors, you can buy and sell CFD difference contracts with the advantage of 24 hours a day, 5 days a week when the market is open. On the other hand, with the bidirectional trading feature of the forex market and a correct strategy, you can take advantage of the opportunity to earn while the prices are both falling and rising. However, you do not have to pay any commission when trading CFD difference contracts in the forex market. This provides you with a low cost advantage like every investor.
It is necessary to open a small parenthesis here. Because our country, the Capital Markets Board (CMB) The minimum to open an account with permission from forex brokerage firms operating in Turkey in accordance with regulation we need to indicate that you have to start trading with $ 50,000 in capital.
5. How to Use Leverage in CFD Difference Contracts?
Leverage can be used during trading on CFD difference contracts. In brokerage houses with an operating license from the CMB, Leverage of 1:10 you can use. This means you can make an investment transaction worth 100 lira with each 10 lira of capital in your investment account.
For a better understanding of the use of leverage in CFD difference contracts, let’s give an example. Let’s say, foreign stock purchase You want to do so, and you decide to invest in Amazon stock traded on the Nasdaq Stock Exchange.
Let’s assume the unit price for Amazon stock is $ 35. In this case, it will cost you $ 35,000 to take the traditional way and buy 1000 Amazon shares. Also, of course, certain commissions will be added to this account along with the related cost, but we do not confuse this for now and proceed with a straight account.
But if you do not choose the traditional way of buying and invest in CFDs, only a small amount of the cost you have to pay will allow you to get the same degree of view by opening the same position. That is, using 1:10 leverage, you will be able to buy 1000 Amazon shares by investing at the same rate at a cost of $ 3500 without having to pay $ 35,000.
For example, if Amazon shares rise 12% to 39 lira, the value of the position we gave in the example will increase to $ 39,000. This will allow you to make a high profit of 4000 dollars at a cost of 3500 dollars.
However, you should keep in mind that the use of leverage can increase your profitability as well as reduce your losses to the same extent. In this respect, you should use leverage by applying a logical and correct strategy.
6. What are the Advantages of CFD Difference Contracts?
CFD difference contracts provide you as an investor with the many various benefits of owning a security with large advances at the same time, without physically owning it. One of these advantages is to be able to trade more easily and quickly with less capital.
CFDs also lever They allow you to take advantage of the system. This helps you to earn higher returns with lower capital. For example, this system makes it possible to make transactions of 10,000 TL with a capital of 1000 TL using 1:10 leverage.
Difference contracts; It offers a wide range of opportunities to invest in world-renowned stocks such as Adobe, Bayer, Boeing, Intel and Apple, stock indices such as the S & P500, Dow Jones and DAX, or commodities such as gold, oil or silver.
In CFDs bidirectional processing capability It also brings with it the advantages of taking a position for both high and decreasing prices of these assets and gaining profit. Thus, you can make a profit both when prices are rising and prices are falling.
Among the advantages of CFD difference contracts is diversification. Diversification, which is important for every investor, reduces potential risks and helps increase returns. In this respect, if you plan to diversify your portfolio, you can take actions for this purpose at a lower cost.
7. What are the Disadvantages of CFD Difference Contracts?
CFD spreads come with a number of disadvantages that you are likely to face, such as excessive price volatility or fluctuations, which can lead to wide spreads between buying and selling prices from a broker.
On the other hand, since CFD difference contracts are traded using leverage, if you have a losing position, you may be able to receive a margin call from your brokerage firm and deposit an additional fee to offset that losing position.
The leverage system can increase earnings and greatly increase profitability in CFD difference contracts, as well as increase losses. As an investor, this can cause your investment to go bad and you risk losing your earnings. In order to prevent this, it is very important to use leverage with the right logic and strategy.
8. How to Learn to Invest in CFDs?
You can use paid or free educational materials on the internet to learn how to trade CFD difference contracts. Examples of these materials include articles, e-books or educational videos.
However, if you plan to invest in CFDs on the forex market, you can open a free forex demo account and experiment with virtual money. With the demo account, you can literally buy and sell CFD price contracts with virtual money and gain experience by gaining practice before risking your real money.
As we always say, the easiest and simplest way to learn about an investment vehicle is to start using and getting to know it. As a matter of fact, a demo account you will open will allow you to recognize CFD difference contracts before you risk your real money and see what you will gain and lose if you actually trade.
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