What facts underly a CFD market?

[Komu]

 

[Brian]

Hello Komu,

CFD are day by day, becoming popular mostly due to its flexibility while trading. You can earn a profit from CFD when the market is either rising or falling.
 When you speculate that the prices will rise, you may go long (sell), and if you think that the prices will fall, you may decide to go short (buy) your market position. Either way, you will make a profit if your speculation is right. 
You need to critically analyze the CFD market and understand how it works before you start trading. However, the CFD market is characterized by some facts that you need to know about before you invest.
One fact about the CFD market is that you need to gamble on the price changes before deciding whether you want to buy or sell your market position. The speculation part in CFD makes them a high-risk investment. You may quickly make losses if the market moves against what you speculate. This is why there is a need for you to understand this market before you take part in it fully.
Another fact with CFD markets is that you can lose more than what you had invested. For this to occur, what your speculation was may not happen; hence the market moves against you. You can however, minimize the loss you can make by using a stop-loss order.
Also, the market markers in the CFD market come up with their prices. The broker sets the buying and selling prices so that if there is a variation in the supply and demand when the market's liquidity is low,  the differences are compensated. 

[Sam Bougheda]

Hi Komu. I just wanted to add to this that the 'CFD market' is not a market. it is a type of trading called a contract for difference, whereby you you and another party enter a contract to speculate on where you think the price of an asset is heading. 

just regarding the comment above. When trading CFD's the broker you choose is the market maker. They give you the price to buy and sell. 

Edited May 27, 2020 by Sam Bougheda