Instruments are a popular way to trade currencies, stocks, indices, commodity futures, and metals. As a derivative product, you do not have to own the underlying asset, instead you are simply trading the asset price movement.
What is a CFD?
CFDs belong to the asset class of derivatives. The value of a CFD is derived from a separate financial instrument, be it a currency pair, a stock, an index, or a commodity. As a leveraged product, you only need to deposit a fraction of the full value of the contract to open a trading position (Saxo Stock provides leverage up to 1:200 on FX instruments for professional clients).
Here’s how it works: If a Stock has an asking price of $10 and 1,000 Stocks are bought, then the cost of the transaction is $10,000. With Stocks, using a 100% margin, the trade would require at least a $10,000 cash collateral from the trader. However, when trading CFDs, often only a 20% margin is required, so this trade can be entered for cash collateral of only $2,000.