CFD Trading - Everything You Need to Know About This Trendsetting Industry

The financial engineering world has constantly churned out new and innovative trading strategies that have disrupted the stock market. The most well-known of these are the Options and CFD (Contract for Difference) markets, which have existed alongside each other for several decades now. But today, in a world where digital trading is driving down trading costs and increasing speed of execution, physical stock exchanges are experiencing a dearth of product offerings. The result? The CFD trading industry is thriving - with over $1 trillion traded every year. And this boom won't slow down anytime soon. Here's everything you need to know about this trendsetting industry.

What is CFD Trading?

CFD trading is a form of derivatives trading that involves the buying and selling of financial assets in exchange for different types of CFDs. A CFD can be a stock, bond, index or currency contract. Traders use a variety of financial instruments to buy and sell these contracts. The most common of these instruments used in CFD trading is the put and call options. A put option gives the holder the right, but not the obligation, to sell (leaving) the underlying at a set price within a set time frame. A call option gives the holder the right, but not the obligation, to buy (entering) the underlying at a set price within a set time frame. The combination of these two options creates a “CFD trade”.

How Does CFD Trading Work?

For a CFD trade to occur, the “buyer” requires a financial instrument that will “buy” the underlying. The “seller” requires a financial instrument that will “sell” the underlying. For example, with CFD trading in Vietnam, traders use a variety of financial tools to buy and sell these contracts. Most popular among these are popular “puts” and “calls” options, as well as the “futures” and the “swaps”. Futures and swaps trades are similar to options in that they involve buying and selling a security for cash at a predetermined future time. But instead of purchasing the security at a specified price, the CFD trading in Vietnam professional acquires the right to buy or sell the same security at a future time for a fee. The “buyer” also purchases the “seller’s” right to buy or sell the underlying at a future time. Traders use various financial instruments to buy and sell these contracts.

The Future of CFD Trading

As the speed and cost of digital trading continues to drop, the future of the physical stock exchange has been called into question. New physical stock exchanges are being designed to speed up trading and make it more accessible to retail investors. However, it’s important to note that these new physical exchanges will not be able to offer the same volume or liquidity that a full-blown stock exchange can, so they won’t be as attractive to institutional and commercial investors. This will further limit the number of new players into the market. At the same time, since new players will be unable to navigate the existing queues, premiums and trading costs of the existing exchanges, the industry will see even more consolidation and reduction of competition.

Key Takeaway

Many have doubted the viability of the physical stock exchange in our modern day and age. And with good reason. While they’re great for regulated industries like stock exchanges and commodities, they just don’t have the same appeal to the investing public. That said, the decline of physical stock exchanges can’t be ignored. The industry is in a state of rapid decline and has less than a decade before a new physical exchange is required to meet regulatory requirements.