The difference between where a trade is entered and exited is the contract for difference (CFD). A CFD is a tradable instrument that mirrors the movements of the asset underlying it. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned. Essentially, it is a contract between the client and the broker. Trading CFDs has several major advantages, and these have increased the popularity of the instruments over the last several years.
CFD trading is OTC based, it is not traded within a financial exchange. XMs is offering CFDs for Indices and Commodities.
How does the CFD market work?
CFD is an open ended contract. If You have not closed your positions at the closing time of the transaction date, the positions will be carried on to the next trading day. At this point, the interest payments or interest acquired is obtained. (depending on whether you hold more than one order or an empty list). As long as you maintain a stable enough usable margin, you can indefinitely hold your opening.
Margin and the CFD Market
CFDs are currently a very popular margin product.
CFDs provide much higher leverage than traditional trading. Standard leverage in the CFD market begins as low as a 2%. Lower margin requirements mean less capital outlay for the trader/investor, and greater potential returns. However, increased leverage can also magnify losses.
Because CFD allows you to commit trades without the requirement of full funding, you need to pay the cost of credit for the long positions, or for short positions you will collect interest.