With this, I hope you have an idea of what CFDs trading on commodities entails. Well, the best way to understand what CFD trading is all about is to use a traditional investing example. Let us assume you want to invest in “XYZ” company, you have to buy the shares of the company at its current price. Peradventure, you want to invest in oil or gold for instance, you have to first buy the oil or bar and wait patiently for the price of the oil or gold to increase. With this increase, you can sell it at a higher price than the buying price to make a profit. CFDs trading involves buying commodities such as oil, diamond, metals, gold, etc.
Your CFD works exactly this way. First, you will open a trade on a particular asset under a predetermined price. Then, you wait for the price to either decrease or increase depending on the position you decide to make profit or loss. In as much as CFD trading is similar to our traditional investing, there is a thin line between both. Unlike the traditional investing where you own the asset, in CFD, you do not own the asset. Rather than this, the CFD reflects the underlying asset price.