Financial contracts that pay the price difference between the open and closed trades in the settlement. CFD traders speculate on the price moving up or down. Traders who expect a price increase will buy the CFD, while those who expect the opposite will sell it.

CFDs track the price of an underlying asset. But investors don't receive any physical assets. CFDs are traded on margin, allowing leverage to the investors. So, a smaller capital is required to invest in CFDs compared to the underlying asset. Traders can take long or short positions; profit or loss from both price movement directions are possible.

High leverage magnifies losses as well as gains. So, risk management is a must. Traders should work with a regulated broker for safety and funds protection. Also, CFD markets are volatile: your positions can be liquidated quickly in case high leverage is applied.

What is CFD trading?

Trading Stock CFDs

An investment method of speculating on the live price of a company's shares.

Traders open short or long positions in CFD markets, speculating on stock prices.

Trading CFDs means you don’t have to take ownership or delivery of the stock paper. No physical transaction is done during a CFD trading transaction.

You don’t buy the stock; you just open a position in the CFD markets based on the underlying asset. However, you are entitled to dividend payments, similar to stock ownership.

Buying Stocks vs Trading Stock CFDs

Accessing stocks market may be hard. There are entry fees, geo-restrictions and more. However, stock CFDs are relatively easier to access. You just need a CFD trading account. Opening a live trading account usually takes between 1-2 business days, involving certain security checks by the broker.

As a principle, stock ownership grants profit only when the stock price increases. But CFD traders can potentially benefit from falling stock prices, as well as rising prices! Your profit or loss is determined by how accurate your speculation is.

Trading stock CFDs doesn't grant share ownership. But you are still eligible for dividends.

What determines Stock CFD prices?

CFD brokers obtain live prices via liquidity providers. Same factors that drive stock prices up or down are valid for stock CFDs as well. Demand and supply play a key role.

Based on market expectations, share prices may increase or decrease. Similarly, its CFD price changes as well. Ultimately, a company’s success is the driving force behind the stock price.

Dividend payments also play a part. Upcoming dividend announcements impact the price of a company’s shares.