In addition to trading for the difference in exchange rates in some jurisdictions (for example, in Cyprus, Australia and the state of Saint Vincent), it is possible to trade contracts for the difference in the rates of assets such as gold, oil, stocks, etc. In addition, in some countries it is permissible is trading on binary options, i.e. using a forecast to increase or decrease the value of the asset. Nevertheless, many developed jurisdictions impose increased demands on brokers and even close the possibility of trading using this kind of financial instruments (for example, Australia, New Zealand, Israel).
One of the most common tools among traders is CFD.
CFD (English Contract For Difference) is a contract for the difference in prices of various underlying assets. Most often they are assets traded in financial markets. When concluding such a contract, one party undertakes to transfer to the other party the difference between the current value of the asset and its value at the end of the contract. At the same time, the contract does not imply the transfer of ownership of the underlying asset itself.
Typically, the CFD does not specify the validity period, and the contract can terminate at the request of one of the parties to which such a right is granted.
These contracts appeared in the 1980s. in England. Then they were just for the difference in the share price. Today CFDs are concluded on almost all exchange instruments.
Before the appearance of CFD, only participants with large capital could trade on instruments of international trade exchanges (for example, stock and commodity exchanges), since the cost of entering the deal on exchanges was hundreds of thousands of dollars. CFD for shares opened access to trading on exchange instruments to a wide range of individuals with very different levels of capital. To conclude such contracts, it is enough to have $ 2,000 on the account.
The opportunity to receive a higher income is achieved through the use of leverage, i.e. borrowing of the broker’s capital in order to increase the income from the investment. To open and hold a trade, you must have a minimum amount on the trading account – margin. The size of the margin, as well as the size of the leverage, depends on the particular broker. Trade with leverage increases the risk while increasing the potential for profit. In the Russian legislation, CFD brokers are not regulated in any way. In our country, only currency pairs are allowed trading tools. Many forex dealers believe that this is unfair, and plan to ask for an extension of the line of tools, in particular, to include CFD in the list of allowed. Despite the limited list of used instruments, trading in Russia has its advantages, because, in the event of a contract with a Russian forex dealer, the client can expect protection from the state.