CFD (Contract for Difference)
What is CFD (Contract for Difference)?
A CFD (Contract for Difference) is a financial agreement that allows you to speculate on the price movement of assets, such as stocks, currencies, indices, cryptos, or commodities, without owning them. Instead of buying the asset itself, you make an agreement to settle only the difference in its price from when you open to when you close your position.
CFD Trading Example
Imagine the price of gold (XAUUSD) is $3,375per ounce.
- You enter a CFD contract for difference to buy one ounce at that price.
- If gold (XAUUSD) rises to $3,400, and you close your position, the difference is $25, which is your gain.
- If gold (XAUUSD) drops to $3350, the difference is –$25, meaning a loss.
In this way, a CFD trading example shows how you can participate in markets without ever owning the actual gold.
Why People Choose Contract for Difference Trading
- Flexibility: Ability to profit in both rising and falling markets.
- Access: Trade a wide range of global assets from one account.
- No ownership: You never have to store or physically hold the asset.
Other Glossary Terms
C
- Currency Pair
A currency pair in trading shows the price of one currency compared to another.
- Cross-Currency Pair
A cross currency pair is any currency pair that does not include the U.S. Dollar (USD).
- Close Price
Closing price (or close price) is the last price of a CFDs pair when a trading period ends.
- Commission
Commission (or forex commission, forex trading commission) is like a small service charge you pay to the forex broker every time you open or close a trade.
- Contract size
Contract size is the amount of a financial asset you are controlling in one trade. In simple words, it tells you “how big” your trade is.
Start yourFundedNext challenge
Thousands of traders are already getting rewarded by FundedNext. The only one missing from that list is you. Your challenge is open now.