How to trade CFDs
Contracts For Difference are not automatically on the Buy spectrum. The same as with every trade, one may start a Contract For Difference trade on the sell spectrum. The core stays the same. Purchasing the contract back from the marketplace to close the trade would be done in the hope of potential returns.
Contract For Difference contract sizes are set. Contracts For Difference on shares, for instance, are created on the worth of a hundred shares of the firm at issue. For instance, a contract for Google shares will be for the worth of a hundred shares in Google. At the current pricing of $853.69, that will render a full contract worth USD 85,369.
The same as CFD FX trading, Contracts For Difference are leveraged assets. Trading with a 1:30 Leverage will effectively let you control USD 30 worth of trades for each dollar you deposit in the account.
At such a leverage*, you will require USD 2,845.56 in your account to trade a total contract of Google shares. Staying with the Google instance, if you think the share pricing is going to go up, you are going to purchase a contract that will be sold back at a bigger price. And here comes the “for difference” part. There’s no physical delivery of Google shares here. The contract is solely for the difference amid the opening and closing costs.
For example, we are purchasing a contract for Google at $853.69. Let us imagine that the share pricing climbs to $875.69. Closing the trade will bring a potential return of USD 22 for each share (875.69-853.69) for a total of USD 2,200 (22 x 100).
On the other hand, if we believe Google shares are going to go down in worth, we’d sell a contract at the $853.69 level. Assuming that the price goes down to $831.69, closing the trade once more brings a return of USD 22 for each share for a sum on the contract of $2,200. It should be highlighted that in case of opposite scenarios where the market is moving against us, this could lead to equivalent losses.
*Leverage 1:30 shown for demonstration purposes, current maximum leverage for CFDs on shares is 1:5