What is a CFD and how they work As its own name indicates, a CFD is a contract in which two parts you decide to interchange the difference of the price of financial assets in the market between the moment at which the treatment is agreed to until it is decided to close it. The originality of this form of investment resides in which you do not need to pay the total value of the active one on which she operates, but only puts an amount initial to position yourself. Practical example If you wish to buy 1000 actions of a certain company to 12 each, the total to pay by this operation in the conventional TRADING would be of 12,000 (without counting commissions or I interest), whereas operating by means of CFDs on action the cost is much smaller. We see: With the CFDs you will not physically acquire the actions, will only buy contracts exceeds they. By this the total is not pleased than they are worth but a percentage plus the commission that the supplier has fixed. For example IG Markets, one of the suppliers of CFDs in Spain, offers a price of quote that the price is the same that to which they are the actions in stock-market then (price ask). The commission of IG Markets for the Spanish actions is of 0,1%. The commission by the 1000 actions that you want to buy you would be: 12 x 1,000 12 actions x 0,1% = .
The margin, that is to say, the initial amount that you must contribute to begin to operate varies according to active on whom it operates and the volatileness of the same. For the Spanish actions in IG Markets the initial contribution is of 5% of the total of the value of the same. This one is the minimum margin, that can increase following what actions are wanted to acquire. Continuing with the previous example, the margin abrir position would be the following one: 1,000 12,000 12 actions x = . A margin of 5% represents 600 . In this point already the advantage can be appreciated that supposes the TRADING with CFDs since you do not have to pay the total of the value of the instrument on which she operates but a smaller amount. This also supposes that the losses can surpass the initial margin and you can to lose more than has put. By this it is advised to use tools of control of risk like the orders limits and orders stops.
Multitude of possibilities with the CFDs It is necessary to emphasize that the CFDs not only is valid in the TRADING on action but more markets in those exist many than to operate like forex, the market of energies, raw materials, stock-exchange indices and bonds, between many others. The previous commentaries do not constitute advising on investments and therefore IG Markets does not accept any responsibility on any use that can be done of them. The CFDs is a raised with a lever product and entails a high risk level. The CFDs can not be adapted for any person, who asegrese of understands the risk completely that implies and realises a constant pursuit of her investment.