Contracts for Difference (CFDs) are financial instruments where the seller pays the buyer the difference between the opening and closing value of the underlying asset. CFDs allow traders to profit from both rising and falling markets. While CFDs do not have time value or volatility premiums like options, they can be traded on margin and require little funds to get started. There are risks to CFD trading that traders should understand, such as using stop-loss orders and simulating trades before risking real money. Trading Lounge is an online trading education service that offers day trading advice and strategies to help traders understand CFDs and minimize risks.

1. What is Contracts for Difference?
CFDs or Contracts for Difference are financial instruments that has gained huge popularity in
Asia over the past few years. It was formed in early 80's and named as 'equity swap'.
Contracts for Difference are an agreement between the seller and the buyer that the seller will
have to pay the difference between the value of the asset at the time of entering into the
contract and at the end of the contract to the buyer. Or receive the amount from buyer if the
difference is negative.
A CFD does not have volatility premium or time value. It is just one for one equity swap. Like
equity swap, CFDs are OTC, meaning the contracts can be customized as per the needs of
the individual and exchange fee can also be avoided. However, selling may be difficult if one
cannot find a seller for a CFD.
One of the features of contracts for difference is that it can be traded on margin and requires
very little fund to get started. Another advantage is its ability to reap the benefits of downward
trends pretending a short position. The traders like the prospects of CFD business. They get
commission from trades.

2. Contracts for Difference are popular among the traders to an extent that the Australian Stock
Exchange has listed exchange traded CFD's. Moreover they are also diversifying their
products and earn exchange fee for each trade also. Since CFD's are marginable, there are
two types of margin with all margin trading – initial and variable margin. Variable margin is
mostly set at a particular range with stocks however a fixed percentage is not necessary with
marking-to-market and Contracts for Difference.
There are several factors to be considered when you start trading Contracts For Difference
make sure that you have clear knowledge of the risks and know how to minimize them by
implementing proper stop loss orders. It is also advisable that before starting trading for real
money, you can try some of the on line trading simulators. These are absolutely free of cost
and give you a fixed amount of play money to be used. It helps you to understand how to
make use of historical data, current market trends and how to use proper stop loss orders,
etc.
About Trading Lounge
Trading Lounge is an online trading, analysis and education service that offers services such
as Day Trading, Trading Strategies, Technical Analysis, and How to Trade advice by a
reputable and experienced trading coach. www.tradinglounge.com.au/ was started by
Peter Mathers in 1982 to meet the growing demand of accessible and sensible education in
online trading.
For more details,
480 Strongs Road, Jasper Brush
Berry, NSW 2535
Phone: (02) 4448 6020
Petertradinglounge@gmail.com
www.tradinglounge.com.au