CFD

1. What is a CFD?

A CFD (Contract for Difference) is a specialized, popular over-the-counter financial derivative that allows investors to trade price fluctuations in stock index futures, commodity futures, stocks and exchange-traded funds.

Through this product, investors can trade freely without actually owning the actual assets or acquiring any rights or obligations associated with the actual assets. The main benefit of trading CFDs is the flexibility of trading price fluctuations without actually buying and selling physical instruments.

AvaTrade's CFDs are derived from the prices of real assets. If an investor believes that the price of a financial instrument may rise (strengthen), and if he believes that the price may fall (weaken), he can trade CFDs. The profit or loss of trading CFDs online depends on the difference between the investor's buying and selling prices.

2. CFD Trading Methods

There are many commonly used trading strategies when trading CFDs. Even the most unskilled traders can understand these strategies. These involve many trading methods, the most popular of which are long and short.

1. Long position

A long position in CFD trading is buying an asset. This means that the value of this asset will rise or is predicted to rise during the contract period.

Long-term trading has higher predictive power. In such transactions, traders can act at lower market volatility. The duration of transactions under normal circumstances ranges from one month to more than one year.

2. Short position

A short position is established when a trader feels that the value of an asset will fall and chooses to "sell", but the trader intends to buy the asset back later.

For example: a trader predicts that the price of an asset will fall during the contract period, so he goes short. If the prediction fails and the asset price starts to rise, the open position will suffer a loss, calculated as the opening price of the asset during this period minus the closing price. Conversely, if the open position shows that the value of the selected asset will fall, the prediction is correct.

Short-term trading can make profits in a short period of time, even minute-level fluctuations. The advantage of short-term trading is to limit financial costs.

3. Period traders

This may be a "golden mean" that can be used to trade unlimited futures and contracts, and can also be used for short-term or long-term CFD strategies.

3. Ways to trade CFDs

Compared to most brokers, you can enjoy the widest range of commodities, stocks and stock indices when trading with Aiwa.

Trade all major commodities with leverage up to 50:1

MetaTrader 4 – can be installed on desktop computers, tablets and mobile phones

Trade leading US, European and Asian stock indices

Go long or short - trade your views on the market

Index trading with a maximum leverage of 200:1

4. What are the advantages of CFDs?

No transaction fees – Investors do not take possession of actual assets nor do they acquire rights or obligations associated with actual assets. It is a contract between the client and AvaTrade.

Leveraged trading – You need much less capital to open a trade than if you took possession of actual assets. Of course, leverage is a double-edged sword and can significantly magnify both losses and gains.

No stamp duty – For many people, CFDs are not subject to stamp duty (this may vary depending on your individual circumstances and jurisdiction).

Multi-instrument investment – ​​A wide range of instruments can be traded on the same trading platform.

Trade in both rising and falling markets – Go short or long depending on market conditions and your trading strategy.

CFDs do not expire – Generally speaking, a rise is usually followed by a fall, which is a continuous and uninterrupted market cycle.

Hedging potential – If there is no preset trade direction, you can open an equivalent position in the opposite direction, which acts as a buffer for your trade.

5. CFD Rollover

Any futures contract will have a delivery expiration date. AvaTrade allows customers to trade CFDs without interruption. In other words, when the old CFD contract with futures as the underlying expires, we automatically roll over the contract so that the underlying asset corresponding to the CFD is changed to the new futures main contract, so that long-term investors can always hold positions without changing the cost of holding positions. However, for the price difference between the old and new contracts, we will make corresponding adjustments and balances, and customers will not get unexpected gains or losses. The rollover profit or rollover loss is only used to balance the position value changes caused by the price difference between the old and new contracts.

If you want to avoid CFD rollover, you need to close your open positions before the delivery date.

*The CFD rollover on Wednesday and Thursday nights occurs after the market closes

In order to provide lower spreads and more stable market prices, AvaTrade will try its best to provide customers with the main contract products for trading. Therefore, the above rollover time may be temporarily changed according to the actual market environment without prior notice.