Ability to Go Long or Short
CFDs (contracts for difference) trading allows investors the ability to go long or short and the opportunity to make money in a falling market without the need to put up large amounts of capital, making them a more flexible way of investing. CFD trading is often used for speculative purposes. CFDs can be used to speculate on the future movement of market prices whether the price of the underlying product is rising or falling. If you believe the price is going to fall you can go short and sell the CFD and thereby benefit from falling prices if your prediction was right. Please see the following example of a CFD trade:
If you believe that the UK 100 will rise in value you can request a price using your online trading account via the Hantec Markets MT4 trading platform. You will see the spread e.g. 5293.5-5294.5 points, and you then buy at 5294.5 for an amount (the minimum amount with Hantec Markets is 1 CFD). This is equivalent of £1 per point movement of the index. If the price moves up to 5394.5-5395.5 and you sell at 5394.5, you would realize a 100 point profit of (the price you sell for 5394.5) minus (price you bought for 5294.5). As you have placed a 1 CFD trade, you would make a profit of £100 (£1 multiplied by 100). Please bear in mind had the market fallen in value you would have incurred a loss of (opening price – closing price x CFD amount).