What is CFD Trading?
CFD trading is an easy and convenient way to trade on the
international markets. It is also a flexible alternative to other types
of trading, giving you access to multiple markets from a single
account. CFDs are traded on margin so you can enter the market with only
a fraction of the actual capital needed. You can use CFDs to speculate
on the future movement of market prices, regardless of whether they are
rising or falling.
Contracts for Difference (CFDs)
A Contract for Difference (CFD) is an agreement between
two parties to exchange the difference between the current value of an
asset and its value at the buy/sell time. It is a product which allows
you to profit from the price movements of shares, indices, futures, and
other financial instruments, without actually owning them - there is no
physical purchase of the asset. This means that if you buy CFDs on
Vodafone shares, for example, you do not acquire the actual shares.
Nevertheless, you can profit from the difference between their buy and
sell prices.
Features of CFD Trading
Going Long or Short
CFD trading allows you to profit from both rising and
falling markets. You buy (go long) if you think prices will rise, or
sell (go short) if you think prices will fall.
So if you think that an asset will experience a loss in
value, you can use CFDs to sell it, and your profits will rise in line
with any fall in that price. The more market prices move in the
direction you anticipated, the more profit you will make. The more they
move in the opposite direction, the greater your loss will be. So it’s
you who decide how long to keep a position open.
Leverage
Leverage is the ability to control more funds (borrowed
from your broker) than the amount of your deposit, in order to increase
the potential return of an investment. CFDs can be traded using
leverage.
A leverage of 20:1, for instance, allows you to trade
with £10,000 by having just £500 (5% margin) in your account. This means
that you can take advantage of the smallest market movements by
controlling more money than you actually own.
While leverage can be advantageous in increasing your
profits, it can also significantly increase your losses, so it should be
used with caution.
Hedging
If you believe your current portfolio may lose some of its value, you can use CFDs to compensate for this loss by short selling.
For example, if you hold £10,000 worth of Barclays
shares, you can short sell the equivalent of £10,000 worth of these
shares through a CFD trade.
In case Barclays share price falls by 5%, the loss in
value of your share portfolio would be compensated by a gain in your
short sell CFD trade. Many traders use CFDs to hedge their portfolios,
especially in volatile markets.
Trading Costs
One of the major advantages of CFD Trading is the lower
trading costs, as opposed to traditional share trading. Not only are
CFDs traded on margin, thus requiring a fraction of the full cost to
open a position, but also the minimum amount to open a CFD trading
account is lower.
For instance, DF Markets imposes no minimum requirements
for opening a trading account. In fact, you can start trading with
whatever amount you feel comfortable with. This way, you can test your
trading strategies without the need to invest a large amount of money.
In any case, your funds are protected according to the rules imposed by
the Financial Services Compensation Scheme (FSCS) - up to £50,000. DF Markets participates in this fund in order to ensure the maximum protection of clients’ money.
The commissions, if any, associated with CFD trading are
lower than the commissions paid for trading on a stock exchange. For
example, if you purchase CFDs on shares of HSBC Holdings valued at, say,
£1,000, you would pay a commission of only 0.10% (or 0.05% for trades
above £10,000) of the trade size. Because the margin requirement is 5%,
you would be required to have only £50 in your account to open that
position.
Cash CFDs
DF Markets also offers CFDs traded on 100% margin, also
called “Cash CFDs”. By opening a cash CFD position, you pay the full
cost of the underlying asset, but no rollover fee is charged for such
positions. This type of trading is very close to trading actual shares,
with the benefit of lower costs and no minimum amounts required to enter
the market, because the minimum number of CFDs you can buy is one.
CFD Trading Platform
The DFTrader
desktop CFD trading platform offers enhanced flexibility and a full set
of professional features to investors looking to trade on the
international markets. Once installed on the computer, the platform can
be further customised to ensure the best trading experience.
With DFTrader you have access to trading over 1,000 CFDs on Shares, Indices, Futures, and Exchange Traded Funds (ETFs).
كاتب المدونةahmed samir
ستتعلم فى هذه المدونة كل ما يخص تداول العملات والاقتصاد العالمى والاخبار الاقتصادية وتحليلها واقتصاد الدول والتداول فى سوق الفوركس من التحليل السعرى بإستخدام البرايس اكشن بدون اى مؤشرات مساعدة فى التداول فقط سنتاجر على حركة السعر ,اتمنى ان تشارك المدونة مع اصدقائك اذا اعجبتك ..
