What is CFD Trading?
CFD, short for “Contract for Difference,” is an agreement between trader (you) and broker (e.g., Primo Bull) to exchange the difference between the price of an asset at the opening and closing of the trade. A popular financial tool, CFDs allow investors to potentially benefit from price movements without physical delivery of a particular asset.
Why trade CFDs?
The advantages gained through CFD trading have made it one of the most popular ways for online investors to trade commodities, indices, currencies, and stocks. Since CFD trading does not involve buying the underlying asset and operates independently of the market, it allows for greater flexibility than traditional trading — for example, access to foreign markets, leveraged trading, and short selling on assets — which would otherwise be more complicated to execute, particularly for retail investors.
Choose the best CFD trading platform
When investing in CFDs, it is important to do your research and choose the best trading platform for you. What Primo Bull offers:
- A multi-regulated platform
- A platform trusted by millions of users
- The ability to trade currencies, stocks, commodities, indices and more in one account
- The ability to go short with no leverage
- Advanced risk management features, such as real-time alerts and customisable stop-loss
- Innovative tools such as CopyTrader™, which allows you to follow other traders and copy their trades automatically in real time
- Dedicated customer support 24 hours a day, Monday to Friday. Including weekends
The tools to help you take your CFD trading to a whole new level
Customised risk management
Set Trailing Stop-Loss and Take Profit parameters to suit your strategy and automatically protect your investments
Advanced analysis tools
From multiple pro charts to analyst consensus and insider transactions — get all the data you need at your fingertips
Innovative investment features
Boost your trading power with one-click-trading, customisable real-time alerts, and live interactive news feeds
Never trade CFDs alone
With Primo Bull, the leading social trading platform, you can connect, share strategies, and discuss CFD trading with millions of users. CFDs also provide the flexibility that makes it possible to copy other traders’ actions with proportional accuracy, automatically in real time. Copying experienced traders is a great way for beginners to get started trading CFDs.
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Frequently Asked Questions
What is CFD Trading?
CFD trading is a method of trading the value of an underlying asset. The trader and broker enter into a contract where they agree to exchange the difference between the price of an underlying asset at the opening and closing of the trade. That is how the CFD gets its name, as it stands for “Contract for Difference” of price.
CFD trading allows investors to leverage their capital and provides many of the benefits of trading assets such as stocks, commodities, indices and crypto without actually owning the instrument or investing large sums of capital.
How do CFDs work?
- The trader chooses an asset offered as a CFD by the broker. It could be a stock, an index, a currency or any other asset to which the broker provides access.
- The trader opens the position and sets parameters such as whether it’s a long or short position, leverage size, invested amount (margin), stop-loss and other parameters, depending on the broker.
- The broker will then state what the opening price for the position is, and whether or not additional fees (such as overnight fees) are involved.
- The position is opened and remains open until either the trader decides to close it or it is closed by an automatic command, such as reaching a Stop-Loss or Take Profit point or the expiration of the contract.
- If the position closes in profit, the broker pays the trader for the difference. If it closes at a loss, the trader pays the broker for the difference.
What does “underlying asset” mean?
Some investment products, including CFDs, are derived from other financial assets. Underlying asset refers to the real financial asset — for example, the actual share of ownership in a stock, or a barrel of oil — on which the financial derivative is based. It is the value of the underlying asset that drives the value of the financial derivative. An underlying asset can be physically owned; a CFD cannot.
Which assets can I trade as CFDs?
Primo Bulls offers CFD trading with currencies, commodities, indices, stocks, and cryptoassets (where available).
What is short selling?
“Short selling,” or “going short,” is a practice that enables traders who believe that an asset is overvalued, to open a position that will gain a profit in the event that the instrument’s price goes down. Short selling is also frequently used as a hedging tool.
How can I use CFDs for diversification?
With CFDs, you have the ability to use leverage to lower the margin required to open the position. For example, say the price of one share of Google stock is $1,000, and you have $1,000 total available capital to invest. Trading using a CFD allows you to invest $100 in Google stock with 1:10 leverage, giving you an exposure of $1,000 to the asset without actually putting up $1,000 of capital. Since you only invested $100 in Google, this frees up the other $900 to invest in different assets, creating diversification.
Is CFD trading legal?
CFD trading is legal in many countries. Primo Bulls is regulated as a CFD broker by CySEC, the FCA, and ASIC. Primo Bulls offers CFD trading in the UK, Germany, France, Spain, Italy, Australia and many other countries.
Is CFD trading safe?
Any financial investment involves risk, and CFDs are no different. CFD assets traded without leverage have the same risk as those assets traded directly. On Primo Bulls, for example, you can invest in any asset without applying any leverage. However, when trading CFDs with leverage, it is important to bear in mind that any losses as well as profits will be calculated according to the total size of your position, and not the capital invested. In other words, if you invest $100 in a position and apply 5X leverage, the total size of your position is $500 and, as such, profit or loss will be calculated according to the latter sum.
Using leverage requires a high level of involvement, as it is advisable to monitor your positions frequently.