CFD is an instrument allowing traders to trade in price movements of an asset without actually owning that asset.

Opening Long (BUY) position with CFD would mean anticipating that the price of an underlying asset will go up. If that does happen, a trader makes a profit. If the opposite happens - the price difference represents a loss.

Using CFDs is possible to bet that the price is going to go down as well. Opening Short (SELL) position with CFD would mean just that. The position becomes profitable if the price indeed moves down. The trader incurs losses if the price moves up.

CFDs are traded on margin, meaning a trader borrows funds from the broker and uses this leverage to multiply potential gains. Leverage also works in the opposite direction, multiplying losses.

To go through a specific example of how CFD works, check out THIS article.

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