CFDs, otherwise known as contracts for difference, allow one to speculate on the future market movements of the underlying asset, without actually owning or taking physical delivery of the underlying asset. CFDs are leveraged instruments that is usually traded over-the-counter with a securities firm. CFDs are available for a large range of assets. However, in this post, I will only be discussing my experience with CFDs for stocks.
So how does a CFD work? It works similar to a stock. First, you enter into an opening trade with a CFD provider at one price. This creates an open position which you later close out with a reverse trade with the CFD provider at another price. However, the beneficial quality of a CFD is that it allows use to use margin to trade. For me, I could buy CFDs while contributing only 20% of the purchase price. What this means is