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RISK WARNING: CONTRACTS FOR DIFFERENCE (‘CFDS’) ARE COMPLEX FINANCIAL PRODUCTS THAT ARE TRADED ON MARGIN. TRADING FOREX AND CFDS CARRIES A HIGH LEVEL OF RISK SINCE LEVERAGE CAN WORK BOTH TO YOUR ADVANTAGE AND DISADVANTAGE. AS A RESULT, FOREX AND CFDS MAY NOT BE SUITABLE FOR ALL INVESTORS BECAUSE YOU MAY LOSE ALL YOUR INVESTED CAPITAL. YOU SHOULD NOT RISK MORE THAN YOU ARE PREPARED TO LOSE. BEFORE DECIDING TO TRADE, YOU NEED TO ENSURE THAT YOU UNDERSTAND THE RISKS INVOLVED TAKING INTO ACCOUNT YOUR INVESTMENT OBJECTIVES AND LEVEL OF EXPERIENCE. PAST PERFORMANCE OF FOREX AND CFDS IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS. MOST CFDS HAVE NO SET MATURITY DATE. HENCE, A CFD POSITION MATURES ON THE DATE YOU CHOOSE TO CLOSE AN EXISTING OPEN POSITION. SEEK INDEPENDENT ADVICE, IF NECESSARY.
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A CFD, or contract for difference, is a financial product that gives you exposure to an underlying instrument e.g. shares or commodities without having to physically buy the product. As such, you are trading purely on movements in the underlying value (quoted price) of the product.
For example, rather than buying gold at a low price and selling it at a higher price to make a profit, you are trading purely on the anticipated price movement (in either direction) of the quoted rate for gold (typically in US dollars).
As its name suggests, a “Contract for Difference” is an agreement between two parties (investor and CFD provider) to exchange the difference between the opening and closing price of a contract.
CFDs allow investors to make assessments of rising and falling markets and to trade using margin/ leverage. They are traded in hundreds of markets; in addition to cash and futures products, CFDs are available for indices, commodities (e.g. gold, oil and natural gas), bonds and stocks (shares).
Other Advantages Of Trading CFDs
PRIME MARKETS OFFERS TRADERS LIVE ACCOUNTS WITH NO CASH DEPOSIT
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ADVANTAGES OF CFD TRADING
Flexibility - size your positions to get exactly the exposure you want
Hold long and short positions - capitalise on bull and bear markets
Leverage - trade “on margin” to maximise potential profits, with reduced outlay.
Trade On Both Rising And Falling Markets
With CFD trading, you can trade on the price of a product going down as well as going up, and try and benefit from selling opportunities as well as buying opportunities. Many investors use CFDs as a way of hedging their existing portfolios through periods of short-term volatility.
Efficient Use Of Your Capital
One of the key advantages of CFD trading is that you can trade using margin, which gives you 'leverage'. This means you can trade without having to put down the full value of a position and as your money is not tied up in one transaction, you can use it for other investments.
For example, to buy the equivalent of 10,000 company share CFDs with Prime Markets, you may only need to deposit 5% of the total position value that you might have to pay if you were buying physical shares from a stock broker.
Trading using margin means you can magnify the returns on your investment but it is important to remember that losses will be magnified as well and it is possible to lose more than your initial deposit. There are many tools on our platform that help you manage your risk effectively.