CFD Trading Guide

CFD Trading Guide
CFD Trading Guide


CFD Trading Guide


The aim of this guide is to provide you with the essential information you need before investing your capital in CFD trading. This guide is not investment advice to encourage or discourage trading in CFDs. And before making any investment decision, you should consult with the brokerage firm or the financial advisor regarding your financial conditions.


A brief history of CFDs

The first CFDs were created by a derivatives broker Smith New Court in London in the 1990s. The purpose of this type of contract was to cater to hedge fund investors who wished to enter short positions in the market, using high leverage, to place larger bets.

The contracts were granted the touches of the investors of the hedges of the risk of the ability to avoid the bite fees), as they do not buy the actual assets themselves (which attracted the dependence on this type of contract. That is, even though it is still subject to the head of the person who is the one who has the right to.

Market volatility was the distinguishing feature of any technology stock exchange at that time, and thus technology stocks were the ideal environment for CFD trading. The permanent changes in those shares made the investment long.

The range is not necessary. And when investors in the stock market realized the advantages of CFDs over other traditional trading methods, CFDs were extended to other asset classes, such as indices, commodities, and currencies. Now, about 25% of UK trading volume is in the form of CFDs.


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What are CFDs?

It is an agreement to trade the differences in the price movements in one of the financial markets, or financial instruments.

In this case, the trader does not own the actual shares of the company, but he has the right to buy or sell several shares or contracts on margin, and this trading results in a profit or loss for the trader. Simply put, CFDs allow you to speculate on a derivative in the money market.


The most important CFD terms

Many terms in CFD trading are similar to trading in the forex market and the stock market. However, we provide you with some terms that are worth noting.

margin and leverage

A partial deposit is used as insurance to allow you to control a larger position. Although brokerage firms differ in the size of the margin they require for various assets, it is not unique to see an initial margin requirement of 5% of the value of the position (or leverage of 20:1).

Dividends

When trading CFDs you should note that the brokerage firm generally needs to calculate revisions to the dividends on the assets it owns at that time. The revisions are in the form of a small debt (if your position is short), and in the form of an advance or loan (if your position is long).

Note: Dividend revisions only occur if the company holding the shares declares dividends to shareholders.

Interest or financing

When trading CFDs, you are borrowing capital on margin, and therefore you will receive daily financing fees on any position you took during the night, and these fees are usually the rate of lending between banks in London, or what is known as Some of the fees added by the brokerage firm.

Example: LIBOR +/- 300 basis points

Note: the daily financing expenses are deducted from long positions. While the short positions are entrusted with the daily financing expenses.

Profit and Loss Securities

What you gain or lose from trading CFDs is usually in the same currency used to trade the asset

Example: If you trade 100 shares of the FTSE 100 index, then your profit or loss is calculated in British pounds. However, if you are trading 30 shares of the Dow Index, then in US dollars.

Commissions

The currency in a CFD is either a fixed amount, or a percentage of the value of your position, and is collected by the Company when you enter and exit the position. Verify the commission charged by the brokerage firm, and how it is calculated.


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Contract size

This is the minimum amount of assets that you must control over the trader you are dealing with. The sizes vary accordingly, and the asset class as well so check both before you start trading.

Direct market access

It allows you to raise buy and sell orders directly to the commercial order book in the global financial markets. Unlike OTC trading, the direct access provided by CFDs allows the trader to enter the second level of pricing without the need to trade on individual stocks.

Guaranteed stop loss

The financial liability of any position, regardless of market movements. Think of them as you have pre-set limits and a traditional stop-loss, with added protection. There is usually an additional cost on guaranteed stop-loss orders, attached to the order as a security.


CFD trading (Advantages and disadvantages, Trading tips, Choosing a brokerage firm, Trading risks)



CFD Trading Guide
CFD Trading Guide


Below we show you a list of assets that you can trade on using contracts for difference, depending on what the brokerage companies provide you with. We give you only the basic assets, because the comprehensive list will be very large, and always changing.

Pointers

CFD contracts can be used to trade on any indices anywhere in the world, from Australia, Mexico, Singapore, Germany, India, the United States, and any other country.

Stocks

Any internationally traded stock can be traded using Contracts for Difference.

Goods

The list includes gold, silver, corn, soybeans, orange juice, carbon emissions, cocoa, sugar, crude oil, and others...


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Forex

All major, minor and non-extensive currency pairs can be traded as CFDs.

Bond

International bonds are offered by countries such as Italy, Germany, the United Kingdom, the United States, and Japan.

Inflation

You can even trade on US, UK, and other CPIs…



CFD trading (Advantages and disadvantages, Trading tips, Choosing a brokerage firm, Trading risks)


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