cfd market

Jun 22

Cfd market

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cfd market

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A Charting Primer for the Forex & CFD market with Barry Norman

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A CFD is an agreement where the difference of the contract price is exchanged at the time of the opening and closing of the contract.

CFDs allow you to profit whether the market value, on which you operate, goes up or down, depending if you have a long or short position . Your profit or loss is the difference in price between the opening and closing of your position (contract).

CFDs allow you to trade in many markets around the world and not only in stocks but also in currencies, commodities , stock indices, ETFs and many more products. For example, operating a CFD on Stocks is in many ways similar to an operation with traditional values, but with additional advantages such as the ability to trade with leverage or trading short. CFDs also allow you to trade in stock indexes which are not available to trade directly.

Each market has a buying price (called “bid”) and a selling price (called “offer”). These rates are derived from the underlying market. If you think the market will go up  you purchase a contract at the offer price and you open a long position. If instead you think the market will fall, you sell a contract at the bid price and open a short position.

For example, suppose that the company HSBC Holdings is currently trading at 683.4 / 683.5.

683.4 bid; the price at which you can sell.

683.5 ask; the price offer at which you can buy.

The difference between the Bid and Offer price is known as spread.

The more the market moves in the direction you have chosen, the the bigger the profit will be. Similar occurs when it moves in the opposite direction. Your position gets lossy. You can maintain the open position during the time you want.

Most CFD trades do not expire naturally. If you decide to liquidate a position, you simply make a transaction of the same value in the opposite direction.

If you buy, for example, 100 CFDs on shares of BP and unfortunately the price starts to fall, and you decide to liquidate the position before you lose to much, the only thing to do is that you sell the 100CFD’s based on those stocks and take your losses.

However, there are some exceptions such as futures contracts in commodities that expire on a specific date in the future.

You can also renew the contract at maturity by paying a small renewal fee. There is no other cost other than this rate, since all the costs are included in the spread

CFDs are a flexible way of operating in financial markets which allows you to:

• Operate bullish or bearish

• Control your risk with risk limits or stops

• High transparency in costs

• Great Leverage: providing only a fraction of the contract value as a margin

CFDs based on stocks offer all the benefits of trading shares without having to physically own them. CFDs mirror the performance of a share.

Stocks are traded in Lots where the minimum price fluctuation is measured in Ticks, where 1 standard contract size is equivalent to 1,000 shares or CFDs.

Stocks are traded in the CFD market. CFDs differ from the traditional markets in that there is no physical delivery of the underlying investment and traders simply invest/trade in the expectation that the price of the underlying market is going to rise or fall.

Start trading your favourite shares like Facebook, Apple, Google and many more with the knowledge and experience of our bespoke analytic team.

EXAMPLE OF USE OF LEVERAGE WITH CFDs

Suppose that the shares of Boeing (BA) trade at USD 130 per share. You decide to buy 1000 CFDs  (shares) of BA at this price.

If you had to pay the full value of those shares, it would cost you USD 130.000.

Using leverage, you get an exposure to the same number of shares of BA contributing only a fraction of the total purchase price as a margin on your trading account. With some popular stocks like BA, the margin may be only 5% of the total value. This means that you have to put USD 6,50 per CFD as margin on your trading account.

The total margin needed in your account for 1.000 CFDs (6,50 x 1000 CFDs/shares) is USD 6.500 (and you will get the same exposure as if you had acquired the assets directly).

If the price of BA moves to USD 131 per share and you dicide to sell your contract of 1000 CFDs BA at this price you make a profit of USD 1.000 (1000 CFDs X USD 1).

Summary of operation:

Buy 1,000 CFDs BA at USD 130

Sell 1,000 CFDs BA at USD 131

Profit: USD 1.000

Margin needed: USD 6.500

In this example you make a similar profit with an investment of  USD 6.500 (margin on your account) than you would have made with USD 130.000 (buying the shares).

Of course you can also lose this amount If the price of BA falls, and you decide to sell or close your contract.

The required margins and slippage factors may vary according to the regulatory rules in force in the country where the account is open.

• Put your needs and interests in first place.

• Always treat you with respect and kindness.

• Display the highest standards of personal and professional integrity.

• Explain the reasons behind our recommendations and advice.

• Closely monitor the progress of your investments.

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