This article is also available in: Spanish(Español)
A contract for difference (CFD) is a popular form of derivative trading. When we talk about CFDs, we are referring to contracts that represent the derivative value of a financial asset, one which can be bought or sold without the need to have actual physical possession of it.
CFD trading enables traders to speculate on the rising or falling prices of fast-moving global financial markets (or instruments) such as stocks (company shares), indexes, commodities, currencies, and treasuries.
With CFD trading, traders don’t actually buy or sell the underlying asset itself(i.e. a physical share, currency pair, or commodity). Rather, one buys or sells a contract that represents a specific number of units of that particular asset, one whose value will tied to the movement of the markets, and one whose profitability will depend upon the type of entry position the trader takes (be it a long or short position.)
Example
When you are buying a WTI oil contract, it doesn’t mean that you are actually acquiring a barrel of oil to be picked up somewhere for direct settlement. Rather, this means that you are making a bet on whether the price of this asset will go up or down in the future (i.e. speculating on its value) granting ample opportunity to profit from any price movements reflected within the market.
HOW IT WORKS
When a trader opens a CFD position, they select the asset amount they want to trade, the entry price, and the leverage level of the position. For every point the price of the instrument moves in their favour, they gain a leveraged multiple of that position, and for every point the price moves against the entry position, they will make a similar loss.
BUY
If you think the price of your chosen market will go up, you click buy (go long) and your profits will rise in line with any increase in that price. However, if the price falls, then you will make a loss for every point it moves against the initial entry position.
SELL
If you believe a market will fall in value, you can sell (bet against) a market — known as going short — and make a potential profit from an asset’s falling prices.
WHICH CFDs MARKET CAN I TRADE ON?
AlteumX users will be allowed to access margin trading through a wide array of financial instruments such as:
- Forex (Currency Pairs)
- Stock
- Indices
- Commodities
- Crypto — Fiat
ADVANTAGES OF CFD TRADING
Ease of Operation
It is very easy to gain access to the margin trading platform. Users will only need to open an AlteumX margin account, and go through the appropriate KYC process. Once validated, they’ll need to have the minimum amount of funds required (20 USD) to begin trading.
Global Access
We offer access to the world’s major markets, allowing round the clock trading. To access the platform users only need a device with Internet access. For security reasons, we recommend using a web browser with a private internet connection.
High Volume
These markets, due to their global size, have enormous liquidity, and as such, they allow traders quick settlements on their preferred trading positions. By entering the platform, users will be able to invest on assets and speculate on their value.
Earning in both Bull and Bear Markets
By being able to trade through the CFD margin accounts, users will be able to profit from both long and short positions. This means that they can benefit and hedge their positions regardless of the direction the market is heading in. By going long on an asset, traders can profit if the asset increases in value. If they short the asset, and its value goes down, they can similarly profit from that position. This bidirectional nature of the market allows users to take positions in share movements, and make better use of their trading capital.
Risk Mitigation
Users can determine how much capital they are willing to risk, taking the leverage amount and interest into consideration. A big advantage of using CFD instruments is the ability to diversify risk by taking different positions in a wide variety of assets.
Higher Leverage
CFD Trading allows users to have higher degrees of leverage when executing a trade, meaning that there are lower margin requirements and capital outlay on behalf of the trader, alongside the possibility of higher returns with less invested capital.
Liquidity
Users can make withdrawals of their earnings at any time they wish to do so. It usually takes from 24 to 48 hours for a withdrawal to be accurately reflected within AlteumX platform. Users should also note that investing in margin accounts does not entail forced installments of any kind, which means they are always in complete control of their funds.
(CFDs are complex financial instruments and have a high risk of losing money quickly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take on the high risk of losing your money)
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