What is a CFD and how they work as its own name indicates, a CFD is a contract in which two parties remember exchanging the difference of the price of a financial asset in the market between the time in which the treatment pacta until it decides to close it. More information is housed here:
For example IG Markets, one of the providers of CFDs in Spain, offers a quote price which is the same as the price that they are the shares on the stock exchange at that time (ask price). The Committee of IG Markets for Spanish actions is 0.1%. The Commission per 1000 shares you want to buy would be: 12 x 1,000 shares x 0.1% = 12. The margin, i.e. the initial amount you must contribute to begin to operate varies according to the active on which operate and the volatility of the same. For the Spanish actions at IG Markets the initial contribution is 5% of the total value of the same. This is the minimum margin, which may increase depending on what actions are to be purchased.
Continuing with the previous example, the margin for open position would be as follows: 1,000 shares x 12 = 12,000. A margin of 5% represents 600. At this point you can already appreciate the advantage that means trading with CFDs since you don’t have to pay the total of the value of the instrument on which opera but a smaller amount. This also means that losses can exceed initial margin and you may lose more than it has been. For this reason it is advisable to use risk management tools such as the orders orders stops and limits. Lots of possibilities with the CFDs is that point out that CFDs are valid not only in the trading stock, but there are many more markets that operate as the forex, the market of energy, raw materials, stock indices and bonds, among many others. The above comments do not constitute investment advice and therefore IG Markets does not accept any responsibility for any use that can be made of them. CFDs are a leveraged product and involve a high level of risk. CFDs may not be suitable for anyone, be sure that you understand fully the risks involved and perform a constant monitoring of your investment.