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What is a CFD?

CFD is short for ‘Contract for Difference’. The ‘contract’ here is between the trader (you) and the broker (GKFX). The ‘difference’ part refers to the changing price of a trading instrument in financial markets. CFDs are derivative products, including but not limited to Forex, Shares and Indices.


CFD is a useful solution to market accessibility problems, as it allows instant trading via online channels. Without owning any underlying assets, you can speculate on the price change from opening to closing the position in the market. Furthermore, CFDs allow trading on margin, in other words with leverage!


Even with a small deposit, you can fund your account and trade larger volumes in Forex, Shares or Indices markets!
 

How do CFDs work?


As a CFD trader, you invest money in a trading account that your broker (GKFX) provides for free. Your broker sets aside a small portion of your investment when you want to open a trading position in the market. The percentage is declared beforehand in the form of leverage.


If the trading instrument you are interested in has 100:1 leverage option, this means only 1% of your desired trading volume will be set aside by your broker. If the price of the instrument (such as a currency pair in the case of Forex) changes according to your prediction, you profit. Otherwise you lose. But always remember this: since you are trading with leverage, both outcomes are amplified.
 

What are the advantages of CFDs?


GKFX offers a powerful and reliable CFD trading platform for all clients. With your initial deposit and leverage, you can take a larger position in the market than your actual investment. Trading CFDs is simply agreeing to exchange the difference in the price of an instrument from a starting point till the closure of the position. It can go up or down. Therefore, one of the main benefits of CFD trading is that you can speculate on the movement in either direction. Both the price increase and the decrease may be beneficial for you.

Also, unlike other investment methods, your chances of profit or loss are not tied to the asset value. You can take a short position (sell) and still profit from the decrease in price. Finally, there are fewer restrictions and limitations for accessing the markets. You can easily Open a Trading Account, deposit funds and start trading in minutes. Since we offer leverage, your initial deposit can actually be quite low as opposed to traditional investment methods.
 

What are the disadvantages of CFDs / margin trading?


Margin trading is risky as the markets are volatile and trades require close monitoring. While leverage is a powerful tool, there is always a chance that it may cause a substantial loss. With sharp price movements, you might lose the margin necessary to keep a position open. Loss can exceed deposit. In that case, you will get a notification from us: Margin Call. This means that your open position in the financial market will no longer be kept open if the price keeps moving against you. But Margin Call is simply a warning: your trading position will remain open. Because it is not unusual to see that Forex markets suddenly shift direction. Your position may quickly recover earlier losses, breakeven and start profiting. However, if your open position keeps losing against the market, you will eventually be forced out to prevent any further losses. This is called Stop Out Level. To prevent this, it is a good idea to top up your account balance with supplementary fund deposit and protect yourself against exposure. GKFX offers Stop Loss mechanisms and regularly warns you to protect against such erratic movements.
 

Example of CFD Trading


CFD trading works both ways: unlike stocks market, for example, you can actually profit from a falling share price! This is called selling or ‘going short’, as opposed to buying or ‘going long’ in CFD trading. Let’s say you decided to trade Facebook shares. You believe Facebook stocks will sharply fall in price today. If you had ownership of Facebook shares in the stock market and somehow predicted this fall, you would have only two practical options: sell it as soon as possible in order to minimize losses or accept your losses and hope that it may someday recover. But CFD trading is a different story. Knowing that Facebook shares will fall, you can quickly deposit funds into your trading account and open a sell position (go short) in the Shares market. When the Facebook shares drop in value in the stocks market as you predicted, you profit; even if you don’t actually own any Facebook shares on paper! Because CFD prices go parallel with underlying markets. Once you close the position anytime you want, you will net a sum of profit immediately reflected on your account balance. From then on, you can simply re-invest your profit to keep trading for more or you can withdraw your money the same way you deposited it.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. See our full Risk Disclosure and Terms of Business for further details.