What are CFDs (Contract for Difference)? – Meryon

A Contract for Difference (CFD) is a financial derivative that allows traders to speculate on the price movement of an underlying asset without owning the actual asset.

Traders can potentially profit from both rising and falling markets by opening Buy (Long) or Sell (Short) positions. The profit or loss is determined by the difference between the opening and closing prices of the CFD.

CFD trading also allows traders to use leverage, which enables exposure to larger positions with a smaller amount of capital. However, leverage can increase both potential gains and potential losses.

CFD Margin Calculation:

Margin Requirement = (Number of Lots × Contract Size × Market Price) ÷ Leverage

Example:
For a 0.01 lot Crude Oil CFD trade with:

Market Price: $64.00
Contract Size: 1,000
Leverage: 1:25

Margin Requirement = (0.01 × 1,000 × 64) ÷ 25 = $25.60