What is CFD and how it works?

A contract for the difference in price of goods (Contract for Difference, CFD) is a financial tool to trade assets such as gold and oil, gas and nickel, cocoa and cotton, without actually having these goods in stock. This enables private investors to express themselves in a new segment of the financial market.

How does CFD work?

Quite recently, there was a dizzying rally in the precious metals market. The situation of uncertainty on the background of debt problems in the eurozone, as well as the need to address the issue of the top bar of the US national debt that led to the fact that investors bought gold as a safe-haven asset.

Hold has been rising in price for about 10 years. On average over the past five years, the annual growth rate of gold was 21.9%. The sharp rise in the value of gold began early July when concerns about the spread of the debt crisis to Italy and Spain increased, and also there was the reluctance of the US Congress to raise the upper limit of the US public debt, which could lead to the default of the country.

From July 3 to July 29, gold rose in price by 8.98% to $1,620.53 per troy ounce. During this period, with a deposit of $3,000, having invested $500 in the purchase of a gold CFD, it was possible to earn $6,650.

CFDs remove goods from such transactions. In transactions that aim to profit from changes in the prices of certain goods, the goods themselves are not interesting for traders. Interest is in the difference in price.

CFDs allow you to get this exchange rate difference without making a real purchase/sale.

In order to be able to trade CFDs, choose the right broker that will be able to offer you full assistance. In the AvaTrade review, you can see that AvaTrade is a reliable broker that will help you with your trades.

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