CFDs are exciting financial instruments that can help you achieve your invesment objectives and give you an opportunity to test your investment skills in exotic markets. However, they don't come without risks. In the following CFD trading tips article we explain why guaranteed stop-loss orders are must-haves and why you should limit your leverage. We only recommend CFD trading to experienced investors, and if you're a rookie, it's an absolute must that you read our CFD trading tips.
CFD trading, in a nutshell is using contracts which you can invest in to make a bet whether a particular financial asset, like an equity or commodity, will increase or decrease in value – without actually investing in the financial asset. For example, when you want to bet on the increase of the oil price, you chose a CFD, which has its price change linked to the price change of a crude oil contract. When the price of the oil increases one percent, the price of the CFD will also increase one percent, so you will gain the price difference of the crude oil. Hence the name: Contract for Difference.
CFDs started out as a type of leveraged equity swap in the 1990s in London, primarily used by hedge funds. In the late 1990s CFDs appeared on the retail market as well, while the 2000s and 2010s saw the first exchange traded and centrally cleared CFDs – so things really picked up. The FCA estimated that the number of UK CFD brokers doubled between 2010-16 and UK clients held £3.5bn in their accounts in total. Of course, the picture is not completely rosy. Because of the risks inherent in these contracts, regulators are increasingly strict with CFD providers. The Australian Exchange closed its CFD exchange in 2014, while in some countries, such as the United States or Belgium, CFD trading is outright banned.
Ok, but some of you might ask, what on earth is a CFD trading? Don't worry, we will let you know.
2017 has seen a major shift in CFD broker regulations, placing emphasis on user security. We at Brokerchooser have long argued for prioritizing security over price when selecting the best CFD broker.
In our 2017 review, we unveil the best CFD brokers and also provide a CFD broker 101 for investors.