CFD trading is a method that enables individuals to trade and invest in an asset by engaging in a contract between themselves and a broker, instead of acquiring the asset directly. The trader and the broker agree between themselves to replicate market conditions and settle the difference amongst themselves when the position closes. CFDs (short for “Contract for Difference”) offers traders and investors the opportunity to profit from price movements in the financial markets without owning the underlying instrument.
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1. The trader chooses an asset offered as a CFD by the broker. It could be a stock, an index, a currency or any other asset that the broker has in their selection.
2. The trader opens the position and sets parameters such as whether it’s a long or short position, leverage, invested amount, and other parameters, depending on the broker.
3. The two engage in a contract, agreeing what the opening price for the position is, and whether or not additional fees (such as overnight fees) are involved.
4. The position is opened and remains open until either the trader decides to close it or it is closed by an automatic command, such as reaching a Stop Loss or Take Profit point or the expiration of the contract.
5. If the position closes in profit, the broker pays the trader. If it closes at a loss, the broker charges the trader for the difference.
   To learn more about how CFDs work, click here.

Trading with leverage means using capital borrowed from a broker when opening a position. Sometimes traders may wish to apply leverage in order to gain more exposure with minimal equity as part of their investment strategy. Leverage is applied in multiples of the capital invested by the trader, for example 2x, 5x, or higher, and the broker lends this sum of money to the trader at the fixed ratio. Leverage may be applied to both buy (long) and short (sell) positions. It is important to note that any losses will be multiplied as well as profits.
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“Short selling,” or “going short,” is a practice which enables traders to open a position that will increase in value if a financial instrument’s price goes down. This is used either when markets are falling, or as a hedging tool.
One of the big advantages of investing in CFDs, rather than in markets like commodities or stocks, is that you can profit from falling markets as well. Remember, a CFD is a Contract for Difference, but that difference can go in any direction. So you can invest in the possibility of prices going up (a “buy” or “long” order) or down (a “sell” or “short” order), according to what you think is likely to happen.

The legality of CFD trading varies by country, but there are many countries where it is legally permitted when properly regulated. Bavaria is regulated as a CFD broker by CySEC, the FCA, and ASIC. Finance Unity Pro offers CFD trading in the UK, Germany, France, Spain, Italy, Australia and many other countries.

Any financial investment involves risk, and CFDs are no different. CFD assets traded without leverage have the same risk as those assets traded directly. On bavaria, for example, you can invest in any asset without applying any leverage. However, trading CFDs with leverage increases your market exposure, thereby, increasing your risk.
To learn more about how leverage works, click here.