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CFD's

​A CFD, or contract for difference, is an agreement between an investor and a broker to pay each other the difference between the price of an underlying asset at the moment the agreement is concluded (opening a trade) and at the time the agreement is terminated (closing a trade). This means that the investor never actually owns the asset. The underlying asset can be almost everything, like stocks, bonds, funds, commodities, etc...

CFD trading instead of regular trading enables many possibilities such as

  1. Fractional ownership of an asset

  2. Opening sell positions (shorting)

  3. Easy access to international markets

  4. More freedom in trading

Although this might seem complicated, when investing in stocks by means of CFDs, and without using leverage, there is the same amount of risk incurred as regularly investing in stocks. If the price of the asset goes up or down, you will get both the same profits, respectively losses with CFD trading as with ​regular stock trading. 

Just as with regular trading, dividends are paid out to investors holding on to a buy position of a stock, dividends have to be paid by investors holding on to a sell position of a stock. 

Advantages
  1. Fractional ownership of an asset: Let's say Google's share is worth €500. Through regular stock investing, you would need multiples of €500 to buy entire Google stocks. CFD's allow you to partially own a stock, for instance half a stock of Google worth €250, allowing investors to invest with smaller amounts of capital.

  2. CFD's offer possibilities for shorting certain types of assets.

  3. Easy access to international markets: The ease of concluding a CFD between an (international) broker and an individual investor allows the individual investor to have indirect but easy access to international markets. 

  4. CFD trading is often less regulated than regular trading, offering more possibilities. In some countries, CFD trading isn't subject to trading taxes.

Disadvantages
  1. CFD brokers often incur a spread between the ask and the bid price —that is how they make money— which has an impact on the returns.

Buy & Sell Positions
Fundamentals