An Intro to CFDs
27th Nov 2009Contract for Difference (CFDs) are becoming an increasingly common investment strategy for those wanting to make money from the Australian Stock Exchange. For people who are new to the market, however, they can be difficult to grasp at first glance.
Firstly, let’s get one thing straight in this lesson on CFD education: CFDS aren’t shares. In fact, CFDs have all the benefits of trading shares, without you actually having to physically buy, own or sell the shares.
CFDs are almost like a board game version of trading real shares in the market. They mirror the performance of a share, or an index. With CFDs, you make an agreement with a provider (like IG Markets or like CommSec) about the opening and closing price of a share or index you’re looking at. You are making a deal with the CFD provider to exchange the difference between the opening and closing prices of the share or index.
Say you see a company you think is going to crash. You can contact your CFD provider to specify the price of the company’s shares (the beginning of the contract) and what level you think the shares will fall to (the close of the contract). If and when you hit your target, the CFD provider will pay out cash on the difference between the starting share price, and when the contract is closed.
It doesn’t take a lot of CFD training in order to get your head around the CFD concept. You can advance your CFD knowledge by checking out the Australian Stock Reports CFD Report.
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