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Contracts for Diference Brokers

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What are Contracts For Difference?

 

Contracts for Difference or CFDs are a financial product in which two parts exchange the difference between the buy/sale price in a financial transaction. The CFDs  are one of the most interesting financial products from the point of view of an alternative investment for the Stock Market, since we can perform the same operations we normally do in this financial market, but being more efficient in managing our capital investment

As mentioned before, this contract involves two parts:

  1. The investor: Is the one who gives the order to buy or sell a contract of certain underlying instrument or asset (shares, indices, commodities, foreign exchange and many others).
  2. The issuer of the CFD: Is the one that issues the Contract for Difference and is usually a financial institution or broker-dealer, who is in charge of the operation of buying and selling that that is directly associated  to this product.

Basically, in this financial product the liquidation is made for differences between the purchase price (sale) and the sale price (purchase), for that reason there is no need to deliver the asset traded.  This is because the issuer is funding the liquidation and requests the investor only a small part of the transaction nominal as security.

Types of Contracts For Difference

 

The different types of Contracts For Difference differ in the underlying assets of each contract. The main types of CFD are:

  • Contracts For Difference on stocks.
  • Contracts For Difference on commodities.
  • Contracts For Difference on foreign exchange.
  • Contracts For Difference on indices.
  • Contracts For Difference on bonds.

 

Advantages of Contracts For Difference

  

The main advantages of CFDs are shown below:

 

  • The Contracts for Difference are a leveraged product: This means that to invest in an asset such as stocks and commodities using CFD, the investor will pay only a percentage of the total value of purchase. In other words, in the time of investment, the trader does not have to invest the total price of the underlying asset of the contract, but only a portion of it as a guarantee. Depending of the broker, this guarantee could be 5% to 25%.This also means that the investor needs to invest less money to get the same gains he would get by trading directly with the underlying products such as stocks, commodities or other. Thanks to this, the necessary capital to invest with CFD is lower than the needed capital to invest in other financial instruments.
  • With the investment through Contracts For Differences, the investor can benefit with increases and decreases in market. Thus, depending on whether you have long or short position, you can take advantage of the total of decreases or increases in the market, with a much lower investment, as we explained.
  • The CFD allow the immediacy of the liquidation of the benefits from the transaction. 
  • Contracts For Difference provide the ability to trade 24 hours a day. This allows the investor to avoid unpleasant surprises occur before the opening of financial markets. Also avoid the limitation imposed by stock exchanges that operate only a few hours a day.
  • Contracts For Difference include the ability to use stop loss orders as a protection against losses that may be taken.
  • The transparency offered by the Contracts For Differences, prevents the broker can enter hidden fees. Typically, the fees charged for transactions in CFD on shares are usually fixed (between 0.8% and 1% in most cases).This allows to know in advance the cost of transactions, avoiding brokerage fees, custody and maintenance, among other charges.

 

In subsequent articles we will interiorizing more on the subject and seeing other features and advantages of this financial product that has become so popular in recent years. In the following table we display a list of Forex brokers which allow transactions with Contracts For Difference:

List of CFD Brokers

BrokerType of broker*Minimum Account depositBroker Review
Alpari

ECN/NDD$100
FxPro
Forex broker FxPro
ECN/NDD$500
Hotforex

ECN/NDD$25
Axitrader
Forex broker Axitrader
ECN$200
AvaTrade

Market Maker$100
ACFX

Market Maker$10
ICMarkets
Forex broker ICMarkets
ECN$200
XM

Non Dealing Desk$5
Hy Markets

Market Maker$50
RoboForex

NDD$10
Markets.com

Market Maker$50
IronFX

ECN/NDD$500
EasyMarkets

Market Maker$25
Plus500

Market Maker$100
Admiral Markets

Non Dealing Desk$50
FXPrimus

ECN/STP$250
Neto Trade
Forex broker Neto Trade
Non Dealing Desk$100
Piptrade
broker Piptrade
Market Maker$50
Agea

Market Maker$25
MFX Broker

NDD$1
Questrade

ECN$1000
ThinkForex
Forex broker ThinkForex
ECN/STP$200
Alfatrade

NDD$500
FxFlat

Market Maker$500
Capital Index

STP/NDD$100
FBS

ECN$5
ETX Capital

Market Maker$100
UFX

Market Maker$500
Trade.com

Market Maker$250
EXNess

ECN/STP$1
Tradeo

NDD/STP$100
IFC Markets

NDD$1
Nordfx

NDD/ECN$5
Instaforex

ECN$10
TurboForex

ECN/STP/NDD$250
Youtradefx

ECN$10
3TG Brokers

ECN$300
BelforFX
Forex broker BelforFX
Market Maker$100
AmigaFX

Market Maker$50
Forex Club

Non Dealing Desk$200
HFX

NDD$300
BMFN

Broker BMFN
NDD$100
FXCM

NDD$25
ForexCT
Forex broker Forex CT
Market Maker$500
GCI Financial

NDD$2000
Bforex

Market Maker$100
LiteForex

Market Maker/ECN$10
IkonFX

ECN/NDD$150
Trade-24

Market Maker$100
Forex-Metal

Market Maker$100
Gainsy

Market Maker$10
Financial Spreads

Financial spread betting&CFD $100

 

*NDD: Non Dealing Desk

ECN: Electronic Communication Network

 

 


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