What is a CFD contract and how to use it to make profit

Today there is a huge number of opportunities to make money in the world of online-trading and investing. This is not only a daily trade in currencies, raw materials and precious metals, but also a professional investment of funds for the medium and long-term prospects. One of the tools that allow you to invest in shares of the world's largest companies are contracts for price difference or CFD.

What is a CFD contact?

Contracts for difference or CFDs are professional instruments for online-trading and investing that allow you to trade not only currency pairs, but also oil, metals, gold, as well as shares of various companies.

Trading CFDs is similar to futures trading for various indexes or commodities, however, for such trading it is not necessary to have several accounts on different stock exchanges, and only one brokerage account can be used.

Contracts for difference are arranged in such a way that their price follows the price of the asset they present. Thus, if the price of shares of any company grew by 5%, then the CFD that corresponds to these shares will also show a 5% increase. It is important to note that with the help of contracts for difference you can open both short and long positions.

History of CFDs

Contracts for difference appeared in the 90s as a result of the investors’ desire to sell shares in short positions without burdening themselves with lengthy and expensive procedures of borrowing. Initially trade by the contracts of difference was allowed only to major market participants and market makers. They offered their clients such over-the-counter instruments that allow you not to pay tax on the purchase of securities. Thus, you can easily guess that when you buy CFDs, you do not purchase physical shares.

Today, this way of investing in stocks and resources is one of the most popular and profitable among investors of all categories. Contracts for difference allow you to sell indices and other assets without coverage, paying only a small part of the cost of the index (margin).

Professional investing with CFDs

Today with the help of contracts for difference everyone can become a professional investor. In order to do this it is enough to register in any preferred broker and purchase CFDs for the selected assets. For example we can take such a professional broker as AMarkets and consider few profitable investment ideas offered on the company's website:

  • PayPal (PYPLV.US). The shares of PayPal have been growing for a long time. Investors continue open long positions and not in vain: the results in the last quarterly report of the company exceeded all expectations of experts.
  • Amazon (AMZN.US). Securities of the company Amazon continue to show one of the best upward dynamics this year among online retailers. For the first quarter of 2017, the company's shares have already risen in price by 25%, having updated the historical maximum.
  • Alibaba Group (BABA.US). Alibaba Group is a key player in the online commerce market and has a leading position in the Chinese market. The Holding monthly develops its existing products, invests in new developments and is not exactly going to stop there.

CFDs for shares of these companies can be purchased with a broker without any taxes or additional payments.

Contracts for difference offer great opportunities for investment and they almost do not have any shortcomings: the procedure for acquiring them is much simpler than buying real stocks, indexes and other assets.