Contract for difference (CFD) trading is an exciting and lucrative way to invest in the cryptocurrency market. This type of trading involves buying and selling cryptocurrencies based on their potential future value, rather than their present price. Contract for difference trading was created by binary options companies in an effort to attract new customers. It’s essentially a way of marketing their services by advertising that they can provide leverage of up to 3:1, which means you can make money by buying assets with a higher future value than their current price. In this article, we’ll explain everything you need to know about contract for difference trading, including what it is, how it works, and the different types of CFD available.
A contract for difference is a type of trading where you buy an asset at a certain price, and then have the right to sell it at a higher price if need be. As clearly explained by a reputable CFD trading provider in Kenya, the key difference between a regular trade and a contract for difference trade is that in a regular trade, you sell assets that you own, and in a contract for difference trade, you buy assets that someone else is willing to sell to you. For example, let’s say you want to buy 100 Apple (AAPL) shares at $50 each. You can find several companies that sell shares of Apple, and you sign a contract with them for the shares to be transferred to your account if you perform the transaction at a specified time. Now, if Apple sells its shares at $60 per share, you will get $4 per share for your investment. If Apple goes on to sell its shares at $80, you will pocket $2 per share for your investment. In both cases, your profit is $2 + $4 = $6 after subtracting your initial investment of $100.
There are many ways to trade contract for difference. The most popular way is through online trading platforms. Here’s an example of how it works as shared by a CFD trading provider in Kenya: Let’s say you have an account with brokerage firm X, and you want to buy and sell stocks online. You can sign a contract with X to buy and sell stocks online with a certain amount of leverage (i.e., the amount of selling pressure applied to push up the price of the stock). You can buy $1,000 worth of shares in X’s stock, and then sell it at a higher price if you want to cash out your money immediately. The leverage feature lets you mix both buying and selling pressure to create more profit or change the direction of your trades.
Although contract for difference trading might sound like a complicated concept, it’s not really. All you have to do is find a funder that has an appetite for risk, and then find a way to bring that owner some return. Since all contracts are based on future events, such as future price movements of assets, you can bring in potential buyers by offering to buy assets that they want to sell at a later date. Additionally, you can bring in potential sellers by offering to sell assets that they’re willing to trade current price for. The best part is that the trading is done on the basis of future events, and you make money not only from the change in the price of assets, but also from the interest that you pay for the added security of the contract. That’s the basics of contract for difference trading, but how does it work in practice? We can share our top picks for the best CFDs providers so you can start trading with confidence today.