CFD is a Contract For Difference on Asset Price
It is financial derivatives that replicate an underlying asset such as futures and financial options (gold, stocks, bitcoin, indices, currencies, etc.) in which the investor and the Broker agree to exchange the difference between purchase and sale prices of an underlying asset.
CFDs are contracts that work like the futures but do not have an expiration date.
In addition, they are more flexible than futures as these are negotiated in batches, for example of 100 shares, and CFDs are traded 1 to 1, as well as actions.
To be a financial derivative, is a tool with which you can speculate on the underlying asset that replicates higher or lower. Main features of the CFD: Are contracts without an expiration date that is signed between the trader and the Broker.
Traded in over the-counter markets, so that there is no authority that directly controls operations. High leverage if that is what you want, you can also make trading with CFDs without leverage on.
CFDs are derived from their underlying assets:
without influencing any other variable. However, do not reflect fully the movement of the underlying.
Allow you to operate both the upside and downside There is a great variety of underlying available High expenses of operating, either by the commission, the spread (difference between the purchase price and the sale) or swap (commission to maintain the open position from one day to another). Every day there is a liquidation of positions and recalculation of the collateral, and the broker may require you to increase the guarantees initial. To open a position, the broker is only going to require a guarantee.
It requires experience, it is not recommended if you are a beginner, as they have a high risk. You should practice in demo.
They are useful for small accounts, since they do not require a lot of money to invest in them. With respect to graphics, you must keep in mind that the price of the CFD is not matching with that of the real graph; especially with the time frames to low (graphics daily or less than daily). If you work with weekly charts, you will have no problem.
This is why it is recommended that you guide with the chart of your broker CFD instead of with the price chart of the action or correct underlying.
IMPORTANT: The counterparty to your trade is the broker, therefore is very interested in your miss, as when it is the broker keeps the money. And when you win, they lose. The brokers inform you of the dangers of trading with CFD results and averages obtained by the people who use them. If you want to operate this type of instrument, read well what it says the broker, as there are many, but not all of them are reliable. And of course, first test in a demo account.