What is CFD Shares Trading?

A CFD is a derivative financial instrument. That means the price of the CFD is derived from the price of the underlying asset. In this instance, the underlying financial instruments are shares. These Contracts for Difference are agreements between the trader and the broker, whereby you agree to exchange the price difference of an asset at the point of purchase, and when the asset is sold.

Suppose you are interested in trading Apple (NASDAQ: AAPL) with a price of $145 per share. With CFD shares trading, you can Go Long (Bullish), or Go Short (Bearish) on Apple stock. Let's assume that you are of the opinion that the price of Apple stock will rise in the future. By taking a long position, you can benefit if the price of Apple stock rises by expiry time. If you adopt a short position, and the price of Apple stock declines at expiry time, you can also benefit.

CFD shares trading does not confer any ownership of actual Apple stock. You are simply trading a contract which mirrors the price movements of Apple stock. If you are correct about the future price movements of the CFD share, you can benefit accordingly. By the same token, if you're incorrect about the future price of the underlying asset, you can lose money on a CFD trade.

Most people buy shares with the expectation that they will rise in value. When you trade CFD shares at Xtrade.net, this condition isn't necessary. You can benefit from rising or falling markets, provided you correctly anticipate these price movements. To do this, it's important to understand the economic factors driving share prices. Technical and fundamental analysis can help you. Read as much relevant information as possible before you start trading CFD shares.

Leverage & Margin at Xtrade.net

Xtrade.net provides leverage when you trade CFD shares on our platform. That means you don't need to deposit the full value** of the CFD share trade upfront. You only need to meet the margin requirement to open the trade. Let's assume you purchase a CFD containing 50 shares of Apple stock. At a price of $145 per share, the total deposit required would be $7,250 (50 X $145), without leverage. You can also learn about indices.

Assuming leverage of 10:1 on CFD shares, the margin requirement is 10%. Margin is the percentage of the total trade that you need to deposit to open a position. Leverage of 10:1, is margin of 1/10. Therefore, your margin requirement is 10% of $7,250 = $725 to open the trade. If at any point while the CFD trade is active, and the price starts moving against you, a margin call might be required. This means that money will be taken from your account to keep the CFD trade open.

Benefits of Trading CFD Shares

• CFD shares trading is possible in rising or falling markets. You simply have to make the correct judgement call at the start of your trade.
• CFD shares trading allows for greater portfolio diversification since you can spread your capital between many different CFD instruments.
• CFDs shares trading is great for hedging. That means, if you have investments in actual shares and you feel that the market is going to drop, you can protect your investment with a sell option on CFD shares.
• CFD shares trading gives you significant exposure with minimal outlay. Thanks to leverage, you can generate the same profit as a traditional trade, with only a fraction of the upfront outlay*.

Risks of Trading CFD Shares

Despite our best efforts to read the financial markets, you will never be able to eliminate uncertainty from the equation. All financial markets are inherently risky. This includes the NASDAQ, NYSE, DJIA, FTSE 100 index, ASX, and others. CFD trading is volatile, given the short-term nature of these contracts for difference, and the fact that leverage is used. Small price movements against you can have an outsized impact on the profitability of your trades. In an unfavourable situation, you stand to lose more than your deposit with CFD trading.

At Xtrade.net we understand your eagerness to get started with CFD shares trading. That's why we encourage you to demo trade CFD shares online, at zero risk of loss. When you understand the inner-mechanics of our trading platform and the financial markets, you can switch to real money CFD trading. We offer a comprehensive set of trading tools and resources to help you maximize your potential, including daily analysis, financial news, and an economic calendar.

Profits are not guaranteed with CFD shares trading. But if you put in the time, and study the financial markets, you can reap the rewards of being an enlightened trader.

* Risk Disclaimer: CFD trading is inherently risky, and not suitable for all types of traders

** Caveat: It is important to understand that traders are liable for the full value of the trade, not simply the margin requirement.

List of Shares