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Transcript
You may have had a lot of talk recently about CFDs, but what does it actually mean?
CFD is short for “Contract for Difference.
Sounds complicated and scary?
Let’s try to simplify it.
By trading CFDs, you’re taking a position on an asset’s price change, rather than holding the underlying asset itself.
This opens up new possibilities for trading which were previously only available to complex and high value investors, such as short selling, leveraged trading, and even hedging, which is a general term for various financial instruments and market strategies used to offset the risk of adverse price movement.
Pretty much everything is CFD-able: currencies, stocks, commodities, indices, even crypto.
When trading a CFD, you’ll have to set a Stop Loss, which is an instruction to automatically close your position if it loses more than a certain percentage or amount.
This is mandatory by regulation to protect you, the investor.
Note that in some cases, like extremely high volatility, you can actually lose more than your set Stop Loss.
You will also have to set a Take Profit, which is an automatic order to close your position when it reaches a certain profit, thus protecting it before it has a chance to fall back down.
Then there’s leverage, which enables you to multiply your buying power by choosing a larger exposure to the market with a smaller amount of invested capital.
It is important to note that use of leverage can increase risk, since profits and losses are always calculated according to the total size of your position, rather than according to the capital invested, so please make sure you use it wisely and monitor your portfolio frequently.
Using leverage allows you to free up the remainder of your budget to explore other investment venues, and lets you diversify your portfolio.
There’s a reason CFDs are more relevant now than ever.
It has a lot to do with market volatility.
For one, it’s the only way to invest in commodities or currencies, which are stable alternatives in times of volatility.
But it’s not only that.
When every day brings with it new, unpredictable shifts, it could make investing in your favorite assets riskier, whereas CFDs, if you use them correctly, enable you to use that volatility to your advantage.
They allow you to go short, meaning, potentially making a profit when an asset goes down.
They are also relevant for day trading and news trading, which tend to go hand in hand with a volatile market.
On eToro, you can invest in CFDs in over 3,000 different assets, all within the same account.
You also get professional charting, advanced risk management features, and competitive spreads.
And check out our virtual portfolio, which lets you experience CFD trading at zero risk.
We know CFDs can come across as complex, but that’s what we’re here for!
You can find our CFD content for all trading experience levels on eToro.com/academy
In the next video we’ll show you how to start trading CFDs on eToro.
Until then, thanks for watching and see you later!