Contracts for difference, or CFDs, are leveraged products that allow investors to speculate on the price movements of underlying assets. While trading CFDs in the US is not permitted, it is a legal form of trading in places like Europe or Australia. US stocks are definitely the hot cake on the CFD trading market, considering that, in 2021, the United States accounts for more than half of the global stock market.
Contracts for Difference Explained
CFDsare a derivative product, meaning youdon’t own the underlying asset when trading. Instead, you are trying to profit from the asset’s price movements. As the name suggests, you are entering into a contract with a CFD provider based on the difference between the opening and closing position of the trade. Whether you profit from going long or short will depend on the final price when the position is closed. This makes trading CFDs a popular choice, in addition to the numerous financial instruments that they offer.
Trading US Shares as CFDs
Trading traditional US shares from outside the US can be relatively cumbersome. It often requires creating and maintaining a separate account with a US broker. It’s a simple task for US citizens. But for those who reside outside the US with no bank account in the country, it can be rather troublesome. Furthermore, national financial regulations also play a role in determining various factors in trading as a foreigner.
This is why a lot of people resort to trading US stock CFDs. With aCFD broker, you can go long or short on US shares such as Tesla, Apple or Microsoft with a CFD from a brokerage. However, the cost for the increase in exposure is higher risk, which could result in much bigger losses as well.
CFD Trading in the US
As previously mentioned, US citizens are unable to trade in CFDs because it is against US securities law.
The Commodity Futures Trading Commission (CFTC) and its overseeing institution, the Securities and Exchange Commission (SEC) both prohibit the opening of CFD accounts through domestic or foreign brokerages.
CFDs are illegal for the simple reason that they are unregulated. In contrast the underlying assets they represent are under regulation, be theystocks,currency pairs,commodities, or bonds.
As an over-the-counter (OTC) financial instrument, CFDs are heavily regulated under theDodd-Frank Act. It is primarily targeted at US financial institutions and US markets but it has an indirect impact on financial institutions outside the US.
With Eightcap, a trusted online stockbroker, you can trade CFDs on some of the hottest US stocks. This includes big names from manyindustrieslike Tesla, Apple, Google, Amazon, Bank of America, Berkshire Hathaway andNetflix.
How to Start Trading CFDs
With a trusted and world-renowned brokerage like Eightcap, you can open up an account in minutes and trade on various financial instrumentsstarting from 0.0 pips. You can also sign up for a free demo account. Try out theaward-winningMetaTrader 4trading platform or its successor, theMetaTrader 5, which gives you the opportunity totrade from any web browser. Thelibraryof educational material can help you get familiarized with some of the US stocks andindicesthat you can trade on five days a week.
