CFDs, or Contracts for Difference, are financial derivatives that allow traders to speculate on the price movements of an underlying asset.
Trading is the act of buying and selling financial instruments such as stocks, bonds, commodities, or derivatives with the intention of making a profit. The profit made by taking advantage of price fluctuations in the assets.
Unlike in trading, with CFDs the trader does not own the asset itself. Instead they enter into an agreement with a broker to exchange the difference in value of an asset from the time the contract is opened to the time it is closed. If the price of the underlying asset increases, the trader makes a profit, but if it decreases, the trader incurs a loss.
While CFDs are a popular trading instrument, they are just one type of derivative used in trading. Other derivatives include options, futures contracts, and swaps. CFDs offer certain advantages, such as the ability to trade on margin, access to a wide range of markets and assets, and the ability to profit from both rising and falling markets. However, they also carry risks, including leverage amplification of losses and counterparty risk associated with the broker providing the CFD.
In summary, CFDs are a specific type of trading instrument that allows traders to speculate on price movements without owning the underlying asset. Trading, on the other hand, refers to the broader activity of buying and selling various financial instruments in different markets with the aim of making a profit. CFDs are just one of the many tools that traders use in their overall trading strategies.