What is a CFD?

What are the advantages of CFDs?

GKFX Prime offers a powerful and reliable CFD trading platform for all clients. With your initial deposit and leverage, you can take a larger position in the market than your actual investment. Trading CFDs is simply agreeing to exchange the difference in the price of an instrument from a starting point till the closure of the position. It can go up or down. Therefore, one of the main benefits of CFD trading is that you can speculate on the movement in either direction. Both the price increase and the decrease may be beneficial for you.

Also, unlike other investment methods, your chances of profit or loss are not tied to the asset value. You can take a short position (sell) and still profit from the decrease in price. Finally, there are fewer restrictions and limitations for accessing the markets. You can easily Open a Trading Account, deposit funds and start trading in minutes. Since we offer leverage, your initial deposit can actually be quite low as opposed to traditional investment methods.
 

What are the disadvantages of CFDs / margin trading?

Margin trading is risky as the markets are volatile and trades require close monitoring. While leverage is a powerful tool, there is always a chance that it may cause a substantial loss. With sharp price movements, you might lose the margin necessary to keep a position open. Loss can exceed deposit. In that case, you will get a notification from us: Margin Call. This means that your open position in the financial market will no longer be kept open if the price keeps moving against you. But Margin Call is simply a warning: your trading position will remain open. Because it is not unusual to see that Forex markets suddenly shift direction. Your position may quickly recover earlier losses, breakeven and start profiting. However, if your open position keeps losing against the market, you will eventually be forced out to prevent any further losses. This is called Stop Out Level. To prevent this, it is a good idea to top up your account balance with supplementary fund deposit and protect yourself against exposure. GKFX Prime offers Stop Loss mechanisms and regularly warns you to protect against such erratic movements.
 

Example of CFD Trading

CFD trading works both ways: unlike stocks market, for example, you can actually profit from a falling share price! This is called selling or ‘going short’, as opposed to buying or ‘going long’ in CFD trading. Let’s say you decided to trade Facebook shares. You believe Facebook stocks will sharply fall in price today. If you had ownership of Facebook shares in the stock market and somehow predicted this fall, you would have only two practical options: sell it as soon as possible in order to minimize losses or accept your losses and hope that it may someday recover.

But CFD trading is a different story. Knowing that Facebook shares will fall, you can quickly deposit funds into your trading account and open a sell position (go short) in the Shares market. When the Facebook shares drop in value in the stocks market as you predicted, you profit; even if you don’t actually own any Facebook shares on paper! Because CFD prices go parallel with underlying markets.

Once you close the position anytime you want, you will net a sum of profit immediately reflected on your account balance. From then on, you can simply re-invest your profit to keep trading for more or you can withdraw your money the same way you deposited it.