What is CFDs?

CFD is a term that is commonly used by cfd investors and traders to describe trading activity in the cfd market that is carried out by traders, investors and speculators.

In cfd trading a trader can buy or sell a cfd. A trader will buy a cfd instrument if they think the value of the cfd trading instrument is likely to appreciate in the future. A Trader will sell a cfd instrument if they think the value of the cfd trading instrument is likely to depreciate in the future.

The Market is an over the counter market which means trading is carried out through a network of the big international banks; this cfd network is commonly referred to as the interbank network. This interbank cfd network consists of banks and cfd brokers which are in different locations. These interbank network is responsible for providing the cfd prices at any particular time to the traders and other cfd market participants who want to buy or sell cfd. In cfd trading the price is constantly changing and this cfds price is denoted by what is known as a CFD Quote. In CFD the Price is displayed as a CFD Trading Quote. This cfd quote is constantly changing and the interbank network will update automatically the current cfd quote and traders can then trade the cfd trading instrument at the current cfd price.

CFD Quotes

Cfd prices of cfd instruments is displayed using CFD Quotes. This is the price at which any cfd trader wanting to trade this cfd instrument will trade at.

Because cfd prices are constantly changing it means that traders can take advantage of these price movements to make profits by trading these price movements. The price of any cfd instrument will keep moving because of demand supply. This is because there are many participants cfd trading instrument in the open cfd market and therefore this means that the price quotes will get determined by the current market forces. These market forces may be determined by factors such as an increase in demand for cfd.

CFD Pips

In cfd trading the price moves are measured in points commonly known as Pips in the market. The pip is used to calculate the profit or loss that a Trader makes in a particular trade. For example if a trader makes a trade which moves 50 pips in his direction, then the profit of the trader will be calculated as 50 cfd pips. Pip in cfd is represented as the second last decimal point in the CFD Quote and it is made up of pipettes - pipettes are fractions of a CFD Pip.

CFD Lots

In cfds trading - cfd trading instruments are traded in units known as cfd lots or cfd contracts.

Leverage

Because not many traders can afford to trade large units of cfd contracts, there is leverage in cfd which means that traders can borrow money and use the borrowed money to make trades with. For example cfd leverage of 100:1 means that a trader with capital of $10,000 can borrow upto 100 times using the 100:1 leverage option & therefore after borrowing using this leverage the trader will have a total of $10,000 multiplied by 100, which means the trader will have a total of $1,000,000. This leverage is what makes CFD Trading accessible to retail traders because retail cfds traders can start with little capital of their own & use cfd leverage to borrow the rest of the money required for trading. Money that the trader deposits is referred to as the trader's margin and a trader can continue borrowing money using this leverage option as long as they have the required cfd margin in their cfd account. This is why cfd traders must have the required cfd account balance in their cfd account to open the trades they want to.