What are CFD Brokers

CFD Brokerages operate different from forex and stock brokers. They do not broker sales of assets. All they do is accept bets for the difference of price of financial instruments. An investor can purchase a contract for price difference on a popular stock like Apple or Boing, but he will not receive any shares for his investment. The investor will be able to sell the contract back to the brokerage and collect the difference of value as profit or loss. Since the investor does not purchase physical ownership of a company or instrument, he will only need to present a marginal value of funds to initiate the purchase. Once the price moves against an investor and uses up the required margin, the contract will be stopped out due to a margin call. It can cause total loss of capital within a very short time frame. On the happier side a small investment can multiply manyfold within an equally short time frame.
With genuine assets such as stocks and forex the broker is the middleman between two investors who interact with each other. One trader’s gain in another trader’s loss. The broker generates revenue from fees and spreads (that tiny price difference between bit and offer) and possibly interest. When trading CFDs the brokerage is not dealing contracts between buyers and seller, but between itself and its cutsomers. It means, a trader’s losses are the brokers gains. The CFD has to satfisfy certain capital requirements to legally operate and cover its losses. It is a good business model because 80% to 90% of traders lose their money when investing in CFDs.





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