4 Crucial CFD Questions Every Trader Should Be Able to Answer
Introduction
If you're venturing into CFD trading (Contracts for Difference), you’re likely aware of the allure — access to global markets, flexibility, and the power of leverage. But with this flexibility comes significant responsibility. Whether you're a beginner or brushing up on your skills, understanding the core mechanics of CFDs can mean the difference between profit and painful loss.
Here are 4 essential CFD questions, along with explanations of why they matter and what you can learn from them.
❓ Question 1: What Happens When a Leveraged Trade Goes Against You?
If you invest €1000 into a crypto CFD with 2x leverage to open a long position and the price decreases by 10%, what would be your gain or loss?
Answer:
🔻 You would lose €200, which is 20% of your original capital.
🔍 Why this question matters:
This question tests your understanding of leverage. Using 2x leverage means you control €2000 worth of crypto with just €1000. A 10% drop in price means a €200 loss — double the price movement.
📘 Key takeaway:
Leverage amplifies both gains and losses. You don’t just double your opportunity; you double your risk. Knowing this helps you calculate potential losses before entering a trade.
❓ Question 2: Can Your Broker Close Your Position Without Asking?
True or false? Broker might close your CFD positions if you fail to meet maintenance margin requirements.
Answer: ✅ True
🔍 Why this question matters:
It’s easy to forget that CFDs are not "set and forget" products. Broker uses a margin call system. If your account value drops below a certain percentage of the required margin (typically 50%), they can close your positions automatically to limit further losses.
📘 Key takeaway:
You must monitor your margin levels closely. Failing to meet them can result in forced liquidation, and you might lose your position — even if the market later recovers.
❓ Question 3: What Makes a Short Position Profitable?
If you have a short position in a CFD for stock XYZ, you might expect the position to increase in value if:
A. The company announces record results
B. Criminal charges are launched against the CEO
C. The company expands into new regions
Answer: ✅ B. Criminal charges are launched against the CEO
🔍 Why this question matters:
This one tests your knowledge of short selling. When you're short, you want the price to go down. Bad news — like leadership scandals — often causes stock prices to fall, which means your short position increases in value.
📘 Key takeaway:
Understanding market psychology and news impact is essential. For short positions, negative events are your opportunity. But remember: bad news for a company = good news for your short CFD.
❓ Question 4: What’s Actually True About CFDs?
Which statement is true?
A. The leverage is different depending on the asset class
B. CFDs are long-term investments
C. CFDs are traded on regulated exchanges
D. Leverage magnifies profits while minimising losses
Answer: ✅ A. The leverage is different depending on the asset class
🔍 Why this question matters:
This question weeds out misconceptions. Leverage limits are set by regulators and vary by product:
- Forex: up to 30:1
- Indices: up to 20:1
- Stocks: usually 5:1
- Crypto: often 2:1
Meanwhile, options B, C, and D are common myths:
- CFDs are short-term, high-risk products — not ideal for passive investing.
- They are OTC (over-the-counter) — not traded on a public exchange.
- Leverage increases both profits and losses, not just profits.
📘 Key takeaway:
Knowing the structure and risks of CFDs helps you avoid overconfidence and dangerous trading habits.
🧠 Final Thoughts: Why These Questions Matter
These questions aren’t just trivia — they’re core building blocks of CFD knowledge. Each one touches on essential topics:
| Topic | Concept Learned |
|---|---|
| Leverage | Amplifies both profits and losses |
| Margin Requirements | Must be maintained to avoid automatic liquidation |
| Short Positions | Profit from falling prices |
| CFD Fundamentals | Understand asset-specific leverage, risks, and rules |
By mastering these basics, you equip yourself with the tools to trade responsibly and navigate the fast-moving CFD markets with clarity.
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