CFD stands for ‘contract for difference’. This is a form of trading and gives you the opportunity to speculate on the rise and fall of prices in stocks, indices, commodities and forex.

Traders choose CFD as an option include trading on margin, and it is easy to sell if you believe that the prices are going to fall, or buy if you think that a price rise is imminent. In the UK, it is also a tax-efficient way to trade so you will not have to pay stamp duty.

How to make money with CFDs

When you Learn how to make money with CFDs, it is not the actual asset that you are buying or selling. You buy or sell a certain number of units, depending upon whether or not you believe the price will rise or fall. These relate to specific financial instruments, and for each point the price moves, you will acquire more CFD units. If the cost does not run in your favour, then you will see a loss.

When you trade with CFDs, you are buying a leveraged product. This means that you can open your trade by only putting down a small percentage of its value. This is referred to as ‘trading on margin’. This can help to maximise returns, but it also means that any losses can be more significant than you expect. Both loss and profits are all based on the full value of the trade, rather than the amount that you have deposited.

If you are trading with CFDs, the trader will pay the spread. This is merely the difference in price between the buy and sell points. You use the buy price that is quoted, and when you want to sell, there is a sale price stated. If the spread is narrow, you may see some profit sooner than expected.