Of all the financial instruments available to traders today, among the newest, increasingly popular and most powerful are Contracts for Difference (CFDs). Though introduced to retail traders in the late 1990s, CFDs are still largely unknown to the broad trading community. Through an evolutionary refinement, CFD activity since 2013 has been defined as between individual traders and CFD providers. There are no standard contract terms for CFDs, and each online CFD provider can specify their own, but they tend to have a number of common characteristics.
While conceptually simple, the evolution of the CFD market indicated progress in a variety of infrastructure technologies to become commercially viable. The ability to create a proprietary platform sufficiently efficient to represent all market participants required sophisticated software processing for back-end server, mobile and cloud technologies. Only with all these elements in place, could a sufficiently robust eco-system be built.
Leverage is the means whereby your CFD margin deposit controls an asset of multiple times greater value, offering a magnified trading impact and accelerated return. Leverage is particularly expanded in CFD forex currency trading because the transaction is totally about cash and requires no agency or third party trade clearing. Thus a leverage multiple of 400:1 is common. Small trading portfolios can thus gain significant diversification at no loss to efficiency. Thus, while leverage is a technique that can be used to multiply gains (or losses), it is better thought of as a tool for the small trader to achieve portfolio diversification.
Note that margin requirements usually increase proportionately to the value of the underlying trade asset.
Another significant advantage of online CFD trading is the single interface to all markets available using CFD trading platforms. Thus if an instrument is transacted on an active recognized market anywhere globally, participants can use their online CFD accounts for trading online.