If you are an trader you might be familiar with CFDs which are derivative that is quite popular amongst traders within many countries. The abbreviations are a symbol of Contracts for Difference; two parties enter into an agreement which states that payment will be made by among the parties on the future date. At that time the ‘payment’ amount would be the difference between current market prices of the decided upon asset and also the market price from the asset in a future date multiplied through the amount of the asset decided.
Most investors are familiar with Over the Counter (OTC) CFDs; however another form is known as the ‘Listed CFD’. Listed CFDs are conducted via a financial exchange for instance the London Stock Exchange (LSE) or Australian Securities Exchange (ASX). This form is said to be less expensive offer lower risk as well as more transparent prices.
Listed CFDs are listed on the public market, are available to be traded by the public via way of primary along with a secondary basis. Because of this the listed CFD is completely different than those of the broker traded unlisted CFDs. Prices are negotiated through the financial exchange and are being provided by the actual broker instead of being traded using the investors and also the actual provider.
Another main factor which makes trading listed CFDs very popular is the fact that this derivative is listed on a financial exchange (LSE, ASX, etc), meaning the investor won’t need to create specific trading accounts.
Unlike unlisted contracts for difference trading the listed CFDs will be ordered and purchased the exact way as that of shares, whereas with the unlisted product the trader will need to fill their take into account any and all positions that become negative.
Since they are traded like shares you will find free guaranteed stop loss orders. This is a loss management factor that is crucial for a lot of investors, his or her liability is limited. There is also no actual margin calls with listed as opposed to that of the unlisted CFD.
Like every form of investing there’s potential for severe capital loss. Although listed CFDs offer less risk due to lesser downside exposure than that of the unlisted contracts for difference, they still take advantage of leverage, and any derivative which makes use of margined trading is involved is highly risky and should not be undertaken through the beginner.