What is this?
A CFD is also known as a contract for difference. It is a derivative product with an underlying asset as its basis. With a CFD, you trade on the price development of the underlying asset.
A CFD allows you to trade nearly every underlying asset including those which are considered difficult or nearly impossible to trade.
An index, for example, contains a large number of different stocks, which would normally require a very large capital outlay to own. The CFD offers you all the comforts of such an index without having to invest the large amount of capital or requiring you to make constant adjustments.
The profit or loss is calculated by determining the difference in position opening and closing price of the underlying asset.
The more the underlying asset moves in your anticipated direction, the more you can profit.
How it works?
A CFD is a leveraged product, which means you only pay a margin (collateral), which corresponds to a fraction of the actual position value.
Through this leverage, you have the opportunity to move large volumes with little capital outlay, which means that small price movements can create high profits. Please be aware that losses may occur in the same manner.
When opening a CFD position, you decide if you want to invest in rising or falling prices for the underlying asset.
Once you close and open a CFD position, the price change will be determined. At closing the difference between the price at the opening of the position and the price at the closing of the position will be calculated.
The difference multiplied by your traded volume determines your profit or loss, depending on if it has been set for falling or rising.
Unless you are trading a futures contract on certain commodities, CFDs have no natural expiration time.