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Five Questions Answered About CFD Share Trading

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Thomas RobertsFive Questions Answered About CFD Share Trading CFD share trading is a trading method that allows you to take a position on the underlying market, without having to invest the large amount of money usually required for share trading

. This might be an alien method for some traders and so this article will help answer some common questions regarding CFD share trading.

What is a CFD? A CFD (Contract for Difference) is an agreement between a trader and the CFD provider to exchange the monetary difference between the value of a contract at the time it was opened to the time it was closed. This contract is based whether the trader believes an instrument in the market, in this case a share price, will move up or down.How does CFD Share Trading work? To open a contract, a trader needs to decide whether to go long or short. A trader going long will believe that the share price of a company is due to rise, while going short would be the opposite. To go long, a trader ‘buys’ at the CFD provider’s offer price to open the contract. The contract is closed once the trader ‘sells’ at the provider’s new bid price, which would be determined by the underlying market value of the share at the time when the contract is closed.What is the risk/reward ratio? Profit or loss is determined by the size of your stake, which would typically be a certain amount of dollars per point, and the aforementioned difference in the share price, which is then multiplied by how many contracts the trader holds. CFD share trading allows investors an extra avenue for potential profit, as they can take advantage of a falling share price as well as a rising one. The amount that stands to be gained is technically unlimited, but so is the amount that can be lost. What could affect a trade? There are numerous factors that could impact a share price. Some examples include a company releasing a profit warning, a company reporting an increase in growth, the GDP and employment levels of a country and even unforeseeable natural disasters can all have an effect on a share price.Where can I learn more? IG Markets offers an in-depth insight into CFD share trading; allowing you to see what is driving the market right now. They provide over 300 Singapore shares to CFD trade on, as well as thousands from the US, European and Asian markets. Please refer to the risk disclosure statement from IG Markets. This article is provided for information purposes and should not be regarded as financial product advice. You should consider the information in light of your specific objectives, financial situation or needs before making any trading or investment decision. CFD trading can result in losses that exceed your initial deposit.

Thomas Roberts is a financial writer who specialises in share trading and CFDs. He has also written many articles on a wide range of financial markets, such as forex, commodities, stocks, bonds and

options trading

.

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