If you are new to CFD trading, you may feel that it is quite complicated. However, in reality all of the terminology and analysis are fairly simple. CFD trading is simply an agreement between two traders where one will hold the CFD while the other speculates on its movements using CFDs and spreads. The beauty of this transaction is that you only need to know leverage meaning, making CFD trading easy to understand and sophisticated.
Now that you have learned about CFD trading contracts for difference, it is time to learn a little bit more about what CFDs really mean. A CFD refers to contract for difference. Essentially, what happens is that two traders will enter into a trading agreement wherein the initial trader will hold a CFD and the other will speculate on its movements using CFDs and spreads. In this next lesson you will learn: What CFDs actually are and their benefits and risk to traders.
One of the main benefits of CFDs is their leverage, meaning they allow smaller investors to participate in the larger trading community. This leverage also allows traders and institutions with large capital to invest in the market without needing to keep large amounts of cash on hand. Another benefit of CFD trading contracts is that the transactions can be quickly and easily executed via the use of the internet or phone. The use of margin is also possible. This means that even though the trader has leverage on his trading account, he does not need to have huge amounts of cash on hand. Leverage meaning traders are able to increase or decrease the amount of money they have access to on a trade, giving them greater control over their trades.