CFDs (Contracts for Difference) are based on a two-party agreement (between buyer and seller) to exchange the difference between the opening and the closing price of a financial instrument according to specific conditions. CFDs are trading instruments suitable for speculation on several financial instruments, including equity indices, energies, commodities and metals without actually owning them.
CFDs are suitable for financial speculation and allow traders to benefit from market movements. You can go long (buy) when you expect a rise in market prices, or go short (sell) when you anticipate a fall in market prices, and increase your profits in line with the price falls.
In anticipation of potential loss in your portfolio value, CFDs can be used to offset loss by going short. Especially in volatile markets, portfolio hedging is a great advantage of CFDs. Supposing you have Johnson&Johnson shares worth USD$10,000, for instance, you can sell the USD$10,000 equivalent of these shares through a CFD trade. In case Johnson&Johnson prices have a 10% fall in value in the market, the loss in value of your shares can be balanced by the gain in your CFDs.
As leveraged products, CFDs mean potential return on investment through high leverage. They enable you to open your position by paying only a small fraction of the total contract value. XEMarkets margins start at as little as USD$ 5. It is also true, however, that the market can move against you and potentially increase your losses. This is why XEMarkets provides 24/5 client support and professional risk management advice for clients who trade CFDs.