AvaTrade was one of the first online brokers to offer CFD trading, giving ordinary individuals easy access to a wide variety of markets, including indices, stocks and commodities.
It’s no exaggeration to say that CFDs have revolutionised online trading. Here we’ll explain everything you need to know before you start trading CFDs.
The Benefits of CFD Trading
- Trade a full range of assets – commodities, indices, stocks & more
- Make larger trades with leverage of up to 200:1
- Buy or sell any asset at the click of a button
- No exchange or management fees
- Trade from a single terminal with MetaTrader 4 & AvaTrader
Start trading CFDs with AvaTrade and get a bonus of up to $10,000.
A CFD is a Contract for Difference. It is an over-the-counter financial derivative that allows you, the trader, to profit on an underlying asset’s price movement, whether up or down.
This means when you trade with us you aren’t buying (or selling) the actual asset. Instead you are making a contract with us based on the difference in value of the asset at the time you make the trade and the moment you close the trade.
How does a CFD trade work?
Trading CFDs is extremely straightforward. You simply select the asset you want to trade and enter your order. If you think the price of the asset, say Facebook stock, will rise then you enter a ‘Buy’ order.
It’s just as easy to enter a sell order if you believe the price of the stock will drop. This is one of the key advantages of CFD trading.
Either way, if you’re right and the price rises, or falls, as you predicted, you close the trade and collect the profit – the difference between the value of the asset when you placed the order and the value of the asset when you closed it.
Find out how easy it is to trade CFD with our risk-free demo trading account.
Trading CFDs on margin
One of the primary reasons for CFDs’ surge in popularity is the ability to trade on margin.
When you trade on margin you only have to cover a small proportion of the value of the underlying asset when executing a trade. This is also known as leveraged trading.
In the case of the most heavily traded assets the margin can be as low as 0.50% - leverage of 200:1 – meaning a trader only has to pay 0.5% of the value of the trade.
The advantage of leverage is obvious. A trader can open a much larger position than they would otherwise be able to afford, increasing the potential profit they can earn.
However, there is a downside too. Just as trading on margin can magnify profits, it can also lead to heavy losses.
What instruments can I trade?
CFDs are extremely versatile and can be used to trade almost any financial instrument. As a CFD specialist, AvaTrade offers a wide variety of assets to trade:
Forex – More than 60 currency pairs
Indices – Trade stock indices from around the globe, including
Commodities – Gold, Crude Oil & a variety of energies, metals & agricultural assets
Stocks – Trade shares in the top global companies and all the biggest IPOs
ETFs – Trade baskets of assets defined by region or industry
Find out more about our full range of assets in our Financial Instruments Index.
There’s no better place to start trading CFDs. Join AvaTrade today and get up to $10,000 new client bonus!