What are CFDs?

A lot of people ask me about the difference between stocks and CFDs so here is a short explanation. A CFD is a contract for difference. Basically a CFD is a tradable instrument that mirrors the movements of the asset(stock, currency) underlying it.

It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned.

Essentially, it is a contract between the client and the broker. Trading CFDs has several major advantages, and these have increased the popularity of the instruments over the last several years.

Keep in mind that when trading CFDs it is extremely important that you use a trusted & licensed broker such as Etoro.

Some of the advantages using CFDs vs Stocks:
Most CFD brokers offer products in all the world’s major markets. This means traders can easily trade any market while that market is open from their broker’s platform. When it comes to stocks it’s usually not easy to trade worldwide. Some brokers specialize in the US market for example while others allow you to buy stocks from Europe. This makes things extremely complicated for the beginner because it would force you to open numerous accounts all over the world. With a professional CFD broker you can trade on the world markets without the hassle.

CFDs are also a easy way to trade bitcoin. Please read my other blog post about it here.

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