CFDs are actually complex finance products that are “packed” very easily. Today it is like this: You sign up with a broker, choose an asset such as the Microsoft share or the DAX and then, you choose if you think the price will rise or fall. Accordingly, you click on “price rises” or “price falls” and voila! Your position is active. You can then directly observe to which direction the price is going and if you get a return or not. It is actually not more than that and this is one of the reasons why CFDs are getting more and more popular.
The most popular thing here is forex trading. That is CFD trading at the so called foreign exchange market (short: forex), the currency market. Here, there is a turnover of 2-3 trillions (!) of US Dollars, per day! The traded currencies are Euros, Dollars, the Philippine Peso, the Pakistani rupee or whatever. Worldwide, there actually exist almost equally many currencies as countries. So, you can imagine the variety and impact of this market. This huge market size brings a lot of advantages for us investors. With the stock market, for example, insider trading is not allowed. That means if you know somebody from the board of directors of a listed company and he tells you a secret, you may not use it to your advantage. With forex trading, this does not matter. The market is simply too big as if insider trading would play any important role. Banks and great investors often do have advantages with regard to information, and they use it. And if you are able to recognize these patterns, you are also able to make a huge profit with trading. This is actually what forex trading is all about.
Why so much?
You should get used to always be leery of somebody who promises you high returns or good returns without any risk. Something like that does not exist. Yeah, with forex and CFD, returns really are high, but for a very good reason: the risk is equally high! But the good thing is that you can manage
your risk accordingly. If you buy a Google share for example, then you have quite a low risk and the fluctuations will probably not be very high. But on the contrary, you cannot influence it either. You can neither influence Google in any way nor can you completely eliminate the market risk even if you bought 1000 other shares. You certainly know the saying that you should diversify in order to minimize your risk. But there is a point where the risk does not get any lower. With CFDs, you have a lot more scope and that is why you can manage the risk a lot better. But we are getting off topic since this is only for advanced traders. But as a matter of fact:
With CFDs and Forex you can get a high return because the risk is equally high!