Contract for difference (CFD – what is it?)
So, in the foreign exchange market, many speculative mechanisms have been created that have a high degree of efficiency when working with currency pores, index, commodity futures and shares. Among all available to a trader, CFD is considered to be the simplest and most profitable.
CFD (Contract For Difference) is a special online market contract, which is concluded not for the purchase of a certain volume of currency, but for the difference between the sale and purchase price of a certain volume.
CFD contracts are a common tool of any Forex broker in the world. It is provided to the trader by default as the easiest and most convenient way for currency speculation and making a profit.
What is the difference between CFDs and real currency purchase and sale contracts?
The fact is that Contract For Difference (CFD) does not involve the delivery of a real underlying asset, but only a change in its value.
For example, you can purchase a certain amount of American dollars that have fallen in price by selling euros, and then wait for the dollars to rise in price and exchange dollars for euros again. Or buy a CFD contract for the dollar to rise in price against the euro and make a profit when this actually happens.
In both cases (if your forecast about the further strengthening of the US dollar is correct), you will make a profit. However, in the first case you will have to pay a commission when converting euros into dollars and back, and in the second case there is no such commission. Accordingly, a CFD contract will be more profitable for you than actually purchasing currencies.
Moreover, if you use CFDs, you can take advantage of the broker's leverage, which will significantly increase your profits. You will learn what leverage is in the next lesson.
