CFD (contract for difference)
Contract for Difference is a derivative and its value is based on the price of the underlying asset (stocks, metals, raw materials, etc.). The bottom line is that the buyer or the seller of the contract counts on certain dynamics of the underlying asset.
HDForex offers three types of CFD: on stocks, indices, prices on precious and industrial metals (gold, platinum, palladium and copper) and energy products (WTI (US) and BRENT (UK) oil). In case of shares it comes to major international companies with high liquidity and sufficient volatility to generate profits.
If a contract for difference is based on stock prices, the cost of one point is equal to the minimum price change – 1 cent or 1 eurocent. For example, when buying 100 CFD on BASF shares worth EUR 70 per share in case of increase of the price to EUR 80 the profit will be 100*70*0,01*(80-70)=700 EUR.
The leveraged derivative products allow investors to speculate on price movements without needing to own the underlying asset. This is because contracts for difference are traded on margin, and the profit/loss is determined by the difference between the buy and the sell price. Because contracts for difference trade on margin, investors only need a small proportion of the total value of a position to trade. Contracts for difference provide an excellent vehicle for short term trading strategies and are the preferred vehicle amongst hedge funds and professional traders.