One of the most popular types of trading for investors involves CFD's. Also known as a Contract for Difference, it's an agreement between two parties that whatever price difference there will be on an asset between the time the agreement is reached and when the sale is completed will be settled by whichever party the agreement favors.
The major function of CFD's is to speculate how market prices will go on certain assets. Traders can make money whether prices are falling or rising, depending upon the strategy they use. Selling when prices are falling is known as going short, while profiting from rising prices is called going long. CFD agreements usually last no more than two months, and a number of investment tools can be bought and sold as CFD's. Stocks, natural gas, stock indices such as NASDAQ and oil are just some examples of assets bought and sold through CFD's. One of the most popular assets sold through CFD's is gold, which is always referred to as the safe haven of investments. With a price that is almost always stable, it's as close to a sure thing as any investment can be. Trading on gold, unlike most other commodities, is available 23 hours per day rather than 24.
Since different CFD's have their own market hours, it's important to pay attention to their expiration dates. All CFD positions should be closed by their expiration dates, and it's worth noting all open trades are closed at 20:00 GMT regardless of profit or loss. CFD's are popular because they don't require a change of ownership over shares, and due to this their income is not subject to taxation. This makes it easy to sell short or long without directly owning any of the assets, and is gaining popularity in the trading of foreign exchanges.
There are many advantages of trading CFD's. Longer trading hours provide traders the ability to trade day or night, and live pricing is used to give traders real-time prices instead of delayed pricing used in normal stock trading. Traders can also profit when prices rise or fall, and CFD's can be traded in pairs. This allows a trader to have a pair of different currencies, knowing that so long as one outperforms the other a profit will be made. With all of these advantages, it's no wonder CFD's are more popular than ever with forex traders.