CFD or Contract for Difference has the following features:
- You enter into an agreement with a CFD provider to settle the difference between the price of a particular investment when the agreement is made and its price when the agreement is ended
- The trader decides whether the underlying instrument the CFD is mirroring is going to go up or down. Get it right and he wins; get it wrong and he lose
- The profit or loss the trader makes is determined by the difference between the prices at which he buy and sell the contract
- CFDs allow traders to trade various instruments like index, commodities, stocks and forex in a convenient single CFD account. The trader does not own the physical underlying asset at any point in time.
- CFD brokers allow traders to implement sophisticated automated trades at specific time. For example, if Singtel shares closed at $3.11 today and the trader decides to long 199 units of Singtel shares if the price reach $3.15 tomorrow between 12pm and 5pm, he can place a Contingent Order.
- CFDs allow traders to benefit from the price movement from a particular stock without having to own the underlying assets which may have a minimum board lot size.
- Contracts for difference allow you to sell shares that you don't already own. This enables you to profit from falling share prices.
- The trader earns an interest when he is shorting a particular stock.
- The low interest rates have made margin trading much cheaper than ever before.
