Contract for difference to German difference contacts of CFDs (contract for difference), to German contracts for difference, are among the derivative financial instruments. That is, its price depends on the price expectations of other investments. Specifically, CFD is time-independent agreements, which value increases or decreases, if the current price of a security by the previous purchase price. If a CFD, based for instance on a Microsoft stock, and this share price rises, rises automatically also the value of the CFD. Conversely, the value of the CFD decreases if the price of Microsoft stock falls. The leverage effect in the CFD market when the value of a CFD so directly linked to the share price, why buy not the share even one then? Why is it worth to invest instead in CFDs? The difference in the multiplier effect.
Who deals with CFDs, can use the lever effect, to increase yield. Who buys a stock, must pay the full price of course. If the shares so currently for $ 25 USD is traded, he must Investing even $ 25 buyer. The share price is at $ 100, also $ 100 be paid when buying the stock. Who, however, invested in a CFD, you have to pay only a part of the share price.
The possible return in expands through the leverage effect. Stockbrokers usually offer a leverage of 5:1 to 100:1. With a leverage of 100:1, you could make a profit by around 100 percent when a price changes of the underlying only one percent. So a doubling of the capital employed. But the risk of loss is multiplied at the same time with the income. In case a fluctuation in the opposite direction, the investor may lose so many times its invested capital. Shareholder advocates discourage small and private investors regularly, to invest in the highly speculative CFDs. Long and short going for professional brokers and savvy stock market investors provide the CFDs but also good for times of recession opportunities on lucrative profits. Because with the Difference contracts, it is possible both on rising prices (here one speaks of long walk) as well as on falling prices (short) to speculate of the underlying. This means that you can not only make money on a stock if the associated company is profitable, but also, if the stock price falls. It is so long in a stock to profit as had by the rising exchange rate and loses when falling. But going to short the stock, turned the profit-loss principle. The investor profits at the moment, in which prices fall and will lose if the stock value increases.