.svg)
.svg)
.svg)
.svg){kind=icon}
.svg)
.svg){kind=icon}
.svg)
.svg){kind=icon}
.svg)
.svg){kind=icon}
.svg){kind=icon}
.svg){kind=icon}
A CFD, short for Contract for Difference, is a financial product that allows you to speculate on a price rising or falling without actually owning the underlying asset. You do not buy a share, commodity or index, but instead enter into a contract based on the price difference. The result is determined by the difference between the opening and closing price of the position
With a CFD, you can profit from both rising and falling markets.
When you open a CFD, you choose whether you expect the price to rise or fall. If you expect a rise, you open a buy position. If you expect a fall, you open a short position. CFDs often work with leverage. This means you can open a larger position with a smaller amount of money. For example, you may only need to deposit €200 to open a position worth €1,000. The advantage is that your profit can be larger. The disadvantage is that your loss can increase just as quickly. As a result, CFDs are riskier than directly buying a share.
Short example:
Suppose a share costs €50. You think the price will rise. You open a CFD on 20 shares. The total value of that position is 20 × €50 = €1,000. With leverage of 5, you only need to deposit €200 to open this position.
Scenario 1: the price rises to €55. That is €5 profit per share. 20 × €5 equals €100 profit. You have earned €100 with a deposit of €200.
Scenario 2: the price falls to €45. That is €5 loss per share. 20 × €5 equals €100 loss. That amount is deducted from your €200 deposit. You are left with €100.
You can also speculate on a decline. Suppose you expect the price to fall from €50. You open a short position of the same size. If the price falls to €45, you earn €5 per share. 20 × €5 equals €100 profit. If the price rises to €55, you lose €100.
If the price moves sharply up or down, losses can increase quickly. With large movements, your entire deposit may be lost and additional funds may be required to keep the position open. For this reason, CFDs are suitable for experienced investors who fully understand the risks.
Disclaimer: Investing involves risks. Our analysts are not financial advisors. Always consult a professional advisor when making financial decisions. The information and tips provided on this website are based on the personal insights and experience of our analysts and are intended for educational purposes only.
