CFD or contract for difference is a popular form of derivative trading which will give you the opportunity to position on the price of an instrument without the need to own the underlying asset. As the name suggests, you will have an agreement or contract with the broker regarding the movement of an instrument’s price. Basically, you are speculating if the market value of a specific asset will go up or down and if your speculation is correct then you will generate a profit as agreed on the contract that you executed. With CFDs you can make a profit both from rising and falling markets.
With CFD’s, you are executing a speculative order to Buy or Sell a certain amount of an underlying asset and the changes in its price will determine your profit or loss. For example, you’re interested in trading gold and you think that its price will rise. That means you need to place a Buy trade of let’s say 7 CFDs at the price of 1290. Suppose that the value of gold increased by 50 points to 1340 and you decided to close your position. That means your profit is 50 times the 7 contracts that you bought and that is equivalent to $350.