What Is CFD Trading And How To Make It The Right Way
Whether you’re new to share trading or a seasoned stock market trader join for free today and see how good a trader you really are! In finance, contracts for differences (CFDs) are categorized as leveraged products. This means that with a small initial investment, there is potential for returns equivalent to that of the underlying market returns. Instinctively, this would be an obvious investment for any trader. Unfortunately, margin trades can not only magnify profits but losses as well. The apparent advantages of CFD trading often mask the associated risks. Types of risk that are often overlooked are counterparty risk, market risk, client money risk and liquidity risk.
CFDs, when offered by providers under the market maker model, have been compared by whom? to the bets sold by bucket shops , which flourished in the United States at the turn of the 20th century. These allowed speculators to place highly leveraged bets on stocks generally not backed or hedged by actual trades on an exchange, so the speculator was in effect betting against the house. Bucket shops, colourfully described in Jesse Livermore ‘s semi-autobiographical Reminiscences of a Stock Operator , are illegal in the United States according to criminal as well as securities law.