What is US Stock CFD (Contract for Difference)?
A CFD (Contract for Difference) is a financial derivative that allows investors to trade based on the price movement of US stocks without actually owning the underlying stock. Through CFDs, you can participate in the price fluctuations of stocks and have the potential to profit whether the price goes up or down.
Basic Principles:
Going Long (Buying):
If you believe the price of a US stock will rise, you can choose to go long (buy) the CFD of that stock. When the stock price increases, you can sell the CFD contract at a higher price to realize a profit.
Going Short (Selling):
If you believe the price of a US stock will decline, you can choose to go short (sell) the CFD of that stock. When the stock price falls, you can buy back the CFD contract at a lower price to close the position and make a profit.
In short, US stock CFD trading allows you to profit from price fluctuations in stocks without holding the actual shares. This enables more flexible participation in the market, regardless of whether the market is rising or falling.
Currently, EBC has listed over 50+ US stock CFDs.
Example: CFD Trading with AAPL Stock
Suppose the current price of AAPL is $170. If you anticipate that AAPL’s stock price will rise, you can choose to go long (buy) the CFD contract. If you believe the price will fall, you can opt to go short (sell).
Scenario 1: Going Long (Buying) AAPL Stock CFD
Assume the current price of AAPL is $170, and you plan to go long (buy) 100 shares of AAPL CFD with a leverage ratio of 1:5.
Required Margin Calculation:
$170 * 100 shares ÷ 5 = $3,400 (Since a 5x leverage is used, the required margin equals 1/5 of the total trade value).
Profit Example:
Assume the stock price rises to $175, your position will become profitable, and you can choose to close the position for a profit.
Profit Calculation:
Profit per share = $175 - $170 = $5
Total profit = $5 * 100 shares = $500
With just a $3,400 margin, you can trade a $17,000 worth AAPL CFD. When the stock price rises from $170 to $175, closing the position locks in a $500 profit, effectively leveraging your capital for higher returns.
Scenario 2: Going Short (Selling) AAPL Stock CFD
Assume the current price of AAPL is $170, and you plan to go short (sell) 100 shares of AAPL CFD with a leverage ratio of 1:5.
Required Margin Calculation:
$170 * 100 shares ÷ 5 = $3,400
(Since a 5x leverage is used, the required margin equals 1/5 of the total trade value).
Profit Example:
Assume the stock price falls to $165, your position will become profitable, and you can choose to close the position for a profit.
Profit Calculation:
Profit per share = $170 - $165 = $5
Total profit = $5 * 100 shares = $500
With just a $3,400 margin, you can trade a $17,000 worth AAPL CFD. When the stock price falls from $170 to $165, closing the position locks in a $500 profit, effectively leveraging your capital for higher returns.