CFD - a special agreement between two parties to exchange the difference between the market value of a specific contract, which was formed between the opening and closing on completion. CFD is one of the most popular instruments for speculative trading in securities, futures, indices, and a variety of goods.
The use of this mechanism is to receive a higher yield by providing leverage on the part of the brokerage company. Contract for difference can be seen as the purchase of securities on credit, with the leverage increases the effective use of funds accumulated on the real account.
Buying shares in the way CFD, the trader receives all the benefits of these securities, from growth rates and finishing dividends . However it is necessary to cover all costs resulting from buying on credit.
The only disadvantage of CFD in this case is the lack of voting rights for the purchased securities. Thus, the trader just gets a bank loan to purchase the interest of his shares and all of its benefits, and the benefits of the bank - the interest transferred by the buyer. Summing up we can summarize that CFD integrates the acquisition of shares and loans in one transaction.
This method is considered to be quite young, as appeared on the market in the mid-80s in the UK. The main cause of the popular schemes of work today - the desire to avoid paying stamp duty on the state and facilitate trade on short positions in specific practical securities in a downtrend.
Today the popularity of CFD is explained not only a great opportunity to extract speculative profit. Investors working on contracts for difference, can, if desired, losing hedge portfolio. The latter function is used when an investor does not want to dump shares of unprofitable companies. In the current situation, market participants tend to enter into a contract for difference unprofitable securities issuers, while maintaining its own investment portfolio.
When working with CFD traders alike can easily open both long and short positions. However, most professionals prefer to work on short transactions, as they are associated with higher risk, and thus have a higher potential return. At the same time, watching the strong drawdown quotes, market participants who have chosen as a tool CFD, can always get rid of unwanted securities in its portfolio.
The use of this mechanism is to receive a higher yield by providing leverage on the part of the brokerage company. Contract for difference can be seen as the purchase of securities on credit, with the leverage increases the effective use of funds accumulated on the real account.
Buying shares in the way CFD, the trader receives all the benefits of these securities, from growth rates and finishing dividends . However it is necessary to cover all costs resulting from buying on credit.
The only disadvantage of CFD in this case is the lack of voting rights for the purchased securities. Thus, the trader just gets a bank loan to purchase the interest of his shares and all of its benefits, and the benefits of the bank - the interest transferred by the buyer. Summing up we can summarize that CFD integrates the acquisition of shares and loans in one transaction.
This method is considered to be quite young, as appeared on the market in the mid-80s in the UK. The main cause of the popular schemes of work today - the desire to avoid paying stamp duty on the state and facilitate trade on short positions in specific practical securities in a downtrend.
Today the popularity of CFD is explained not only a great opportunity to extract speculative profit. Investors working on contracts for difference, can, if desired, losing hedge portfolio. The latter function is used when an investor does not want to dump shares of unprofitable companies. In the current situation, market participants tend to enter into a contract for difference unprofitable securities issuers, while maintaining its own investment portfolio.
When working with CFD traders alike can easily open both long and short positions. However, most professionals prefer to work on short transactions, as they are associated with higher risk, and thus have a higher potential return. At the same time, watching the strong drawdown quotes, market participants who have chosen as a tool CFD, can always get rid of unwanted securities in its portfolio.