CFD stands for Contract for Difference, it speculates or marks the rising or falling prices of fast- pacing global financial markets such as in shares, commodities, indices, etc. It can be performed on a vast range or scale depending upon the type of financial market the trader is interested to invest in. There are thus different Contracts for Differences types trading depending upon the type of CFD market, they are listed below:
- CFD trading types are as follows:
- Global Stock CFDs
- Stock Index CFDs
- Forex CFDs
- Industry Sector CFDs
- Commodity CFDs
- Metals and Energy CFDs
Now, the contracts for differences types are listed below:
- Share CFDs
Share CFDs are one of the most commonly traded CFDs in the market. In this type of CFDs, the CFD price comes from the price of the already existing stock which is the main subject of the CFD. Someone who has experience in the field of stock trading will share a similar experience in trading of Share CFDs with minute differences.
- Index CFDs
These types of CFDs are tied only with the performance of a single or specific index. The investments which offer high levels of liquidity and volatility, in particular, these types of investment traders prefer using Index based CFDs. There are certain advantages of using Index CFDs which can be: Low margin, high leverage, low trading costs, and specifically access to enter the international markets. Certain popular indices are London Stock Exchange, Australian Stock Exchange, Dow Jones, etc.
- Commodity CFDs
Commodities are basically physical assets that are in demand. Investors thus then classify them under two categories: High and soft Commodities. This can be simply understood by the fact that high commodities are mined or new and soft commodities are grown. These commodities are similar in or uniform in quality from each other. Now, trading of these commodities as an exchange is slightly complicated as each trader will have a different commodity to exchange with different expiry dates. The only advantage is when there is no confusion while trading in specific similar commodities thus leading to low trading costs. Common commodities for CFDs can be Crude oil, Gasoline, Precious Metals, Heating oil, etc.
- Treasury CFDs
When a trader wants to trade on the value of the treasury notes, that is the time when they would use Treasury CFDs. Treasury notes which are commonly traded are US Bonds, Australian Treasury Bonds, Euro Bonds, etc.
- Sector CFDs
CFDs allow you to invest anywhere around the globe where you find a growth area. With the help of Sector CFDs, you can take a view of the economy anywhere where you like to invest. They would analyze for you the specific individual company whereas you only need to select the profitable area to trade. One of the advantages of Sector CFDs is that they have a larger spread on the economy than the individual stock CFDs. With sector CFDs, you will lead to diversification which would reduce volatility compared to single stocks.
- Inflation CFDs
People nowadays can earn profit from trading on inflation. The liquidity can be low and the choice in going for long term or short term depends upon the investor. The CFDs are paid out on the basis of published CPI figures. If a trader or investor is concerned about the increasing inflation, he/she can use this CFD to avoid huge amounts of loss.
- Carbon Trading CFDs
The carbon trading CFDs is a private law contract between a low carbon electricity generator and a low carbon contract company. They have their own sets of terms and conditions and the specific CFD agreement. The idea is very political and volatile as it is a contract of future emissions values.
Yes, trading CFD with low or nil leverage is possible. But this requires a huge amount of money in order to make trading worthwhile. Moreover, the leverage offered by the broker varies from instrument to instrument, and also offers high leverage for currencies as compared to the leverage for stock and shares.
CFDs for hedging can be done by taking an opposite position that will become profitable in case your other position started to fall in the loss. CFDs, generally, suits the hedging of individual shareholdings because investors can take a ‘short’ CFD position for the shares they hold.
CFD, generally, traded with the brokers and futures, on the other hand, traded on a stock exchange. While trading CFD, you buy the number of contracts if it expects to rise and can easily sell if it falls. In futures, the contracts require you to trade a financial instrument in the future.