How to use CFDs to take advantage of a rising or falling market
When you trade contracts for difference (CFDs), not only can you profit when the market is rising in value, you can also profit if the market is falling. You just have to decide whether to go long or short with your CFD trade. Read on to uncover how you can use CFDs to profit from a rising or falling market…
Just like other derivative products, such as futures and options, you can go long or short CFDs, the team of experts at FSP Invest
in The Ultimate Guide to Trading Contracts for Difference
Long or short? You choose
When you go long, you’re hoping the underlying asset (for example, the share or index) is going to rise so you can profit from this upward movement.
Or, if you believe the underlying asset is going to fall in value, then you’ll go short.
That’s the fantastic thing about CFDs, you can profit from rises and falls in the market.
If you buy a contract, you’re taking a long position on a CFD. You profit if the underlying asset of your CFD rises above the price you entered the contract at.
For example, let’s say, your CFD is based on the underlying value of Angloplats. If the price of Angloplats (the underlying asset) rises, you’ll make a profit. But, if the price of Angloplats takes a dive, you’ll make a loss.
Alternatively, if you’re shorting a CFD (selling a contract), you’ll profit if the underlying asset of your CFD falls below the price you entered the contract at.
For example, your CFD is based on the underlying value of Telkom. If the price of Telkom (the underlying asset) plummets, you’ll make a profit. But, if the price of Telkom soars, you’ll make a loss.
So there you have it, how you can use CFDs to profit from a rising or falling market.