If looking for a leverage form of investment opportunity which goes beyond the boundaries of exchange traded derivatives, one option is to consider the use of over the counter derivatives trading in the form of CFDs or contracts for difference.
Contracts for Difference: What are CFDs?
Contracts for difference are a non-exchange traded derivative occupying a position midway between futures trading and spread betting. The CFD allows an individual to gain a leverage exposure to fluctuations in the value of a wide range of underlying assets. In addition, the ability to take a long and a short position allows an investor to potentially benefit from both rises and fall in the value of an underlying asset.
As a non-exchange traded derivative, CFDs are traded between private investors and an approved broker dealing CFDs. Whilst CFDs are a non-exchange traded derivative, the responsibility for regulation in the UK still falls under the umbrella of the Financial Services Authority (FSA). Make sure to do your own research or visit a site that has done that all ready to make sure that you join the best CFD trading platforms on the net today. They all have benefits and disadvantages so make sure to pick the one that fits your investment strategy.
How do Contracts for Difference Work?
From a mechanical perspective, the investor can choose to buy or sell a CFD at an agreed price depending upon whether a rise or fall in the value of an underlying asset is expected. If a rise in the value of the underlying asset is expected, then a CFD will be bought giving the investor a long position. If the value of the underlying asset is expected to fall, then a CFD will be sold, thus giving the investor a short position.