Types of CFD Instruments

CFD (Contract for Difference) trading allows traders to participate in various financial markets without owning the underlying assets. Trading with CFDs gives traders the potential to profit from both rising and falling markets by speculating on price movements. 

It is possible to take action in different markets and assets with CFDs. These markets and assets are:

• Forex
• Indices
• Commodities
• Stocks
• Cryptocurrencies

Let's take a look at the details of trading these assets with CFDs and the unique advantages of each of them.

Forex

Forex trading involves the exchange of currencies on the foreign exchange market. With this method, traders can speculate on the price movements of currency pairs, such as EUR/USD or GBP/JPY.

Forex trading offers high liquidity. This allows traders to enter and exit positions quickly, not to mention the market operates 24 hours a day, five days a week.

One of the best sides of trading CFDs with forex is leverage. With leverage, traders can control larger positions with a smaller amount of capital. Although you can earn a lot by leverage, keep in mind that there's still risk in this trading method as well. So, be prepared for potential risks. If you want to play safer, you can take a look at major currency pairs such as EUR/USD, USD/JPY, and GBP/USD, instead of minor and exotic pairs. The majors are known for their high liquidity and tight spreads.

If you're after a fast-paced trading experience, then forex can be a good option for you.

Indices

Indices trading involves speculating on the performance of a group of stocks that make up a specific index, such as the S&P 500, FTSE 100, or DAX 30. These indices have an important role in representing the overall performance of particular segments of the stock market or the economy.

Trading indices gives you the chance to trade in a broader market perspective without the need to trade individual stocks.

Popular indices to trade include the S&P 500, which represents 500 of the largest companies in the U.S.; the FTSE 100, which comprises the top 100 companies listed on the London Stock Exchange; and the DAX 30, which includes 30 major German companies.

Trading indices allows traders to take action in broader markets and trends by offering profit opportunities from both rising and falling markets.

Commodities

Commodity trading is the speculation on price fluctuations of physical goods such as gold, oil, and silver.  Commodities play a critical role in the global economy. The prices of these assets can be influenced by various factors such as supply and demand, geopolitical events, and economic data.

A good thing about trading commodities is the ability to hedge against economic uncertainties. Common commodities to trade include precious metals like gold and silver, which are often seen as safe-haven assets during times of market volatility. Also, other popular commodities include crude oil and natural gas as well.

Trading commodities can be advantageous since it offers opportunities due to volatility and the potential for large price movements. It can be a good choice for traders focusing on global economic trends and investing in them.

Stocks

Trading stocks is owning shares of certain companies. However, stock CFDs don't require traders to own shares like in the stock market. This way, they can make quicker transactions.

Popular stocks to trade include well-known companies such as Apple, Amazon, and Tesla, which are frequently traded due to their high liquidity and market influence. Traders take advantage of stock trading by focusing on company-specific news, earning reports, and other market events that can influence stock prices.

Cryptocurrencies

Cryptocurrency trading is the actions taken in the trade of cryptocurrencies such as Bitcoin, Ethereum, and Ripple. These digital assets have gained significant popularity due to their potential for high returns and the growing acceptance of blockchain technology. Yet, CFD trading including cryptos allows you to trade on the volatility of the prices of these assets.

Trading cryptocurrencies allows you to participate in a highly volatile market that operates 24/7, providing continuous opportunities for trading. Although it can come with high profits, keep in mind that the risks are not to be overlooked, since it is a rapidly changing market.

This is an ideal market for traders who are looking for high-risk and high-reward opportunities.

CFD Markets and Assets in a Nutshell

Trading CFDs offers access to diverse markets. It is possible to trade forex, indices, commodities, and stocks with CFDs. While each market and asset has its own advantages, one common point is the ability to make transactions quicker with CFDs.

There are options for all kinds of traders and strategies. Discover the world of CFD trading with zForex and pick your own assets and markets to trade with CFDs.

FAQs

What is the difference between stocks and stock CFDs?

Stocks represent ownership in a company, while stock CFDs allow you to speculate on the price movements of a stock without owning the actual shares.

Are CFDs illegal in the US?

Yes, CFDs are illegal in the US for retail traders due to regulations by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), which prohibit the sale of CFDs.

What are some popular indices to trade with CFDs?

Popular indices include the S&P 500, FTSE 100, and DAX 30.

Why are commodities a good option for CFD trading?

Commodities offer diversification and the potential to hedge against economic uncertainties, with significant opportunities due to their price volatility.

What are the risks of trading cryptocurrencies with CFDs?

Trading cryptocurrencies with CFDs involves high volatility and regulatory uncertainties, posing increased risks alongside the potential for substantial profits.