A contract for difference involves two trades:
- The first is that you will have to enter into opening trade at one price with a CFD provider. It is what creates an open position which you will later on close out by doing a reverse trade with the same CFD provider at a different price.
- In case the first trade is a long position or a buy, the second trade that closes the open position is referred to as a sell. On the other hand, if the opening trade happened to be a short position or a sell, the closing trade will be referred to a buy.
The CFD is able to capture the price difference of the asset which is underlying between the closing out trade and the opening trade.
Holding a long position
- In case a closing out price is greater than the opening price, then the CFD provider will have to pay you the difference that is between the closing and opening out prices of the CFD.
- And if the closing out price is less than the opening price, then you will have to play the CFD provider the difference that is between the closing and opening out prices of the CFD