What is CFD trading?

At iFOREX you have the opportunity to trade CFDs and take advantage of price movements without actually owning the instrument that you trade.

Confused? Let’s start at the beginning: Contract for Difference (CFD) is a contract between a buyer and a seller to settle on the difference in value of a financial asset or instrument from the time the contract is bought until it is sold or vice versa.

Need a visual explanation?

Take a quick look at this informative video:

Good to know:
When you open a CFD deal, you buy ‘contracts’. E.g: One contract is the price of 1 barrel of oil / 1 ounce of gold / 1 share, etc.

Types of CFD products

Here are the three main types of CFD products that you can trade online.

For the full list of our available CFD instruments, visit our trading conditions page.

The key features of CFD trading

• CFDs allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions). This means you can trade even when the price of an instrument goes down.
• At iFOREX you can trade CFDs with leverage, meaning you can open large deals with a relatively small investment.
• You can trade anywhere and anytime using advanced platforms for web and mobile.
• You don’t need to own - or store - the products you invest in.

How to choose a CFD instrument?

iFOREX offers a wide variety of CFD instruments you can invest in, so how do you choose? Many traders prefer to start with instruments they know well or can easily obtain information about. More experienced traders sometimes choose to diversify their trading portfolio, in order to maximize their trading potential and to optimize their risk-management.

How to open your first CFD deal

Are you ready to open your first CFD deal? Great! You can do so in three simple steps.

1. Choose an Instrument
   Let’s say you want to trade crude oil. If the price of one barrel of oil is $50, one CFD on Oil will also be worth $50
2. Choose Your Deal Size
   By using leverage you can buy up to 200 times more oil with your investment. For example, with a $100 investment, you can buy $20,000 worth of oil CFDs (in this example 400 contracts), using 200:1 leverage
   $100 × 200 = $20,000.
3. Choose Direction
   When you trade CFDs, you can open trades even when you think prices will go down. If, for example, you think that oil prices will drop, open a “Sell” deal. You did? Great. What’s next?

Close your deal and collect the profit
Let’s say the price of oil has dropped to $49 and you decide to close your “sell” deal.

Open Rate
$50
Closing Rate
$49
Difference
$1
This is a change of $1 for 400 contracts, meaning a profit of $400 with a $100 investment.

Conclusion

CFD deals are based on predicting the price changes in financial assets over a period of time, rather than on transferring ownership of them from one person to another. There are several advantages that follow from this deal format, for instance the ability to open long or short deals on any available instrument, which allows you to benefit from bear markets just as well as bull runs. You can also enter the market at the price of your choice since you set your own deal size. This breaks the price barrier barring you from trading in higher-priced instruments.

Aside from this, CFD trading gives you the chance to boost your deal size exponentially with leverage - a tool with the potential to multiply your earnings, but also your losses when the market doesn't go your way. All these benefits apply to your trading in a wide range of assets from all the world's major industries, from commodities to shares to cryptocurrencies and more.