What is a CFD contract?

CFD as a trader-broker agreement

The full form of CFD is a contract for difference. At the end and at the beginning of the contract, the broker and the trader agree to exchange the difference in the price of an asset.

What is a CFD

In CFD, buying, and selling of assets is done by traders without actually owning them. Basically, the trader predicts the price direction of an asset and if the trader’s prediction is right then the trader earns a profit and if the prediction went wrong then the contract will result in a loss for the trader. The closing of the position totally depends on the trader.

Example CFD trade

Let us understand with an example, Jack buys 1000 stocks of ‘A’ company which costs 20 dollars each. Jack predicts that the price will grow in the future so Jack pays twenty thousand dollars for 100 stocks to the broker.

Mario buys 1000 stocks

As Jack predicted, the price of stock increases, and now they cost $25. At this point, Jack closes the contract and sells the stock. So here the forecast of Jack was correct and he receives the price difference of amount $5000 from the broker.

Marios forecast is correct

But if Jack’s forecast goes wrong and the stocks drop in price then, in this case, Jack will have to pay the amount to the broker after the contract ends.

Marios forecast was wrong

CFDs at IQ Option are available for almost any assets: oil, gas, gold, stocks, currency pairs, cryptocurrencies, etc.

Also read: CFDs On IQ Option Made Simpler.

We wish you a pleasant trading experience.

Top 5 Trending

Guide to Trading Using the EMA Indicator on IQ Option

The Exponential Moving Average (EMA) is a moving average indicator. Moving Average indicators are trend-following indicators which smooth out price… [Read More]

Guide to Trading Using the Three White Soldiers Pattern on IQ Option

The Three White Soldiers is a candlestick pattern that signals a strong uptrend reversal. This pattern usually forms at the… [Read More]

IQ Option Account
Overview of the IQ Option platform

The main trade room window of IQ Option platform shows a chart of an asset. Main trade room window at… [Read More]

Guideline for password recovery on the IQ Option platform

Are you an account on IQ Option? Have you forgotten your password to log into your account? Then here is… [Read More]



Comments are closed.