CFD trading is defined as ‘the buying and selling of CFDs, with ‘CFD’ meaning ‘contract for difference’. CFDs are a derivative product because they enable you to speculate on financial markets such as shares, forex, indices and commodities without having to take ownership of the underlying assets.

Instead, when you trade a CFD, you are agreeing to exchange the difference in the price of an asset from the point at which the contract is opened to when it is closed. One of the main benefits of CFD trading is that you can speculate on price movements in either direction, with the profit or loss you make dependent on the extent to which your forecast is correct. 

Short and long CFD trading explained

CFD trading enables you to speculate on price movements in either direction. So while you can mimic a traditional trade that profits as a market rises in price, you can also open a CFD position that will profit as the underlying market decreases in price. This is referred to as selling or ‘going short’, as opposed to buying or ‘going long’.

If you think XAUUSD are going to fall in price, for example, you could sell . You'll still exchange the difference in price between when your position is opened and when it is closed, but will earn a profit if the  drop in price and a loss if they increase in price.

With both long and short trades, profits and losses will be realised once the position is closed.