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A CFD is a derivative financial instrument. That means the price of the CFD is derived from the
price of the underlying asset. In this instance, the underlying financial instruments are shares.
These Contracts for Difference are agreements between the trader and the broker, whereby you agree
to exchange the price difference of an asset at the point of purchase, and when the asset is sold.
Suppose you are interested in trading Apple (NASDAQ: AAPL) with a price of $145 per share. With CFD shares trading, you can Go Long (Bullish), or Go Short (Bearish) on Apple stock. Let's assume that you are of the opinion that the price of Apple stock will rise in the future. By taking a long position, you can benefit if the price of Apple stock rises by expiry time. If you adopt a short position, and the price of Apple stock declines at expiry time, you can also benefit.
CFD shares trading does not confer any ownership of actual Apple stock. You are simply trading a contract which mirrors the price movements of Apple stock. If you are correct about the future price movements of the CFD share, you can benefit accordingly. By the same token, if you're incorrect about the future price of the underlying asset, you can lose money on a CFD trade.
Most people buy shares with the expectation that they will rise in value. When you trade CFD shares at Xtrade.net, this condition isn't necessary. You can benefit from rising or falling markets, provided you correctly anticipate these price movements. To do this, it's important to understand the economic factors driving share prices. Technical and fundamental analysis can help you. Read as much relevant information as possible before you start trading CFD shares.
Xtrade.net provides leverage when you
trade CFD shares
on our platform. That means you don't need to deposit the full value** of the CFD share trade
upfront. You only need to meet the margin requirement to open the trade. Let's assume you purchase a
CFD containing 50 shares of Apple stock. At a price of $145 per share, the total deposit required
would be $7,250 (50 X $145), without leverage.
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Assuming leverage of 10:1 on CFD shares, the margin requirement is 10%. Margin is the percentage of the total trade that you need to deposit to open a position. Leverage of 10:1, is margin of 1/10. Therefore, your margin requirement is 10% of $7,250 = $725 to open the trade. If at any point while the CFD trade is active, and the price starts moving against you, a margin call might be required. This means that money will be taken from your account to keep the CFD trade open.
Despite our best efforts to read the financial markets, you will never be able to eliminate
uncertainty from the equation. All financial markets are inherently risky. This includes the NASDAQ,
NYSE, DJIA, FTSE 100 index, ASX, and others. CFD trading is volatile, given the short-term nature of
these contracts for difference, and the fact that leverage is used. Small price movements against
you can have an outsized impact on the profitability of your trades. In an unfavourable situation,
you stand to lose more than your deposit with CFD trading.
At Xtrade.net we understand your eagerness to get started with CFD shares trading. That's why we encourage you to demo trade CFD shares online, at zero risk of loss. When you understand the inner-mechanics of our trading platform and the financial markets, you can switch to real money CFD trading. We offer a comprehensive set of trading tools and resources to help you maximize your potential, including daily analysis, financial news, and an economic calendar.
Profits are not guaranteed with CFD shares trading. But if you put in the time, and study the financial markets, you can reap the rewards of being an enlightened trader.
Get started with your Xtrade account today