What is CFD? Well, the acronym for “Contract for Difference”, CFD, stands for a contract in between 2 parties with the purpose to exchange difference between entry & exit rate of some financial instrument. The CFD traders are enabled to invest on global, domestic shares & indices, commodities or foreign exchanges. As the CFDs are the derivatives, the trader never owns physical share but rather either makes profit or loss – on underlying share rate movement since CFD displays price of underlying security.
CFD Trading occurs in between the individual traders & CFD providers. In this case, you don’t have any standard term of contract & each of the CFD providers come with his own particular contract specifications. CFD trading starts with opening trade regarding some specific instrument with CFD provider. It creates “position” in the instrument. You don’t have any expiry date here. When the “position” gets closed, difference between opening & closing trade would be counted as loss or profit. CFD providers might come up with varied charges during open position, such as commission, bid-offer spread, overnight financing & account-management fees.
It’s true that CFD doesn’t expire but the positions kept open overnight would be rolled-over. It implies that any loss or profit is realized & debited or credited to client account – followed by calculation of financing charges. The position would be further carried over to next day. According to the industry regulations, this process would be generally conducted at around 10pm, the UK time.
The CFD trading is based on margin & the trader should maintain a minimal margin level all through. One of the most important characteristics of such a trading procedure is that here the loss and profit margin need is constantly calculated in real-time. In case, the sum deposited with a CFD broker declines below minimal margin, margin calls are made. The traders should cover up the declining margins quickly as otherwise CFD providers might liquidate the positions.