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CFD Trading

Posted By Marcus Holland On Monday, January 21st, 2013 With 0 Comments

Introduced to the market during the 1990s, CFD trading is an increasingly popular derivative within the retail sector.  It is very similar in principle to spread betting but is more accessible globally, mainly due to the stigma attached to the word betting in some countries.

What is a CFD?
CFDs History: In the Beginning
CFDs Trading Guide
CFD Uses
CFD Demo Accounts
Short Selling

Initial Margin
Variation Margin
CFD Valuation
Margin Call

Advantages Of Trading CFDs
Leverage
Corporate Actions
Simplicity and Lower Transaction Costs

CFD Trading Vs Share Trading
CFDs versus Futures
CFD Trading Vs Margin Lending
Differences Between CFDs and Financial Spread Betting

Trading Strategy
Swing Trading
Short Term CFD Trading
Intraday Trading with CFDs
CFD Day Trading
Scalping
Pairs Trading
Trading Volatile Markets
Using Charts to Trade CFDs
Placing a CFD Trade with a Stop Order

Shares Trading
Index CFDs
Foreign Exchange CFDs
Commodity CFDs

Characteristics of CFDs
Direct Market Access
Market Maker CFD Model
CFD Models – DMA vs Market Maker
Costs of Trading CFDs

Creating a CFD Trading Plan

Managing your Money: Risk and Money Management
Dangers and Disadvantages of Leverage
Win/Loss Ratio in CFD Trading
Determing Exit Points
Stop Loss and Limit Order
Position Sizing: Fixed Percentage Model
Position Sizing: Fixed Dollar Model
Drawdown Recovery
Re-Entry
Trading Psychology – Controlling Emotions
What To Do When Things Go Wrong…

Survival Strategies: Avoiding the Traps
Know your Goals
The Workings of Leverage and Margin Trading
Always have a Stop Loss
Position Sizing
Starting Out
Trade with Money You can Afford to Lose
Financing Costs
Direct Market Access or Market Maker CFDs?
Data Accuracy
Know the Markets you are Trading
Develop your Trading Method/System
Keep Accurate Records
Make your Position Size Relevant
Diversification
Trading Psychology

10 Golden Rules of CFD Trading
How To Choose A CFD Provider?
Which CFD Broker to Trade With?

Top 2 CFD Brokers

Pepperstone

Pepperstone

Unique Advantages – Spread Betting or CFDs on MT4, MT5 and cTrader!

Pepperstone was established in 2010 when it established an operation in Australia. Pepperstone launched in the UK in 2016 and today they have many European clients. The European operation trades in accordance with the regulatory principles set down by the European Securities and Markets Authority and the UK FCA.

Highlights

  • Deep Interbank Liquidity with very tight spreads!.
  • Scalpers are welcome.
  • EAs and Hedging is allowed.

Visit Pepperstone here.

Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

Bux Markets

Bux Markets

Unique Advantages – Variable Margin (Control Your Leverage)

Bux Markets is a fast growing spread betting and CFD provider. We love the fact that Bux Markets only charge interest on the ‘borrowed’ amount (unlike other providers who charge you on the full amount including the amount you put up as margin) and that they pass on 100% of the announced dividends net of withholding tax (unlike other providers who may pay just 80% of dividends). With Bux Markets you can trade on thousands of different markets including shares, indices and commodities.

VISIT Bux Markets

Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.9% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

What are Contracts For Differences?

A Contract For Difference is simply an agreement between two parties where one pays the other the difference between the current price of an asset and its price at a specified time in the future.  One of the similarities with spread betting is that although there is an expiry date of the contract, it can be closed by early by either party – the private trader or CFD broker.  A broker will normally only close a contract if the trader has exceeded its minimum margin requirement and doesn’t have the funds to cover the trade.

The benefits of CFDs over more traditional methods of investing are numerous.  We will discuss each of these in turn:

Minimal margin requirements

CFD brokers, like spread betting companies, offer their clients the ability to trade using leverage.  When they open contracts, the trader is only required to fund a small percentage of the contract’s value in the form of a deposit.  Being able to trade on margin means the trader can open positions that are worth considerably more than their account balance meaning resulting in larger gains.

Although it is a highly beneficial aspect of the CFD, trading with leverage is particularly risky and should be headed with caution.  This is why we would advise anyone starting out in CFDs to begin by opening a demo account first to familiarise themselves with how it effects trades and also the risk management tools that can be used to offset this risk.  Most of the leading brokers will offer a practice account and they are free to open.

Market choice

The number of different tradable markets within a CFD account is simply breath-taking.  Most brokers will provide access to the following and more:

  • Forex
  • Indices
  • Individual stocks and shares
  • Commodities
  • Interest rates
  • Market sectors

Trade on rising or falling markets

When you use share dealing services or brokers to buy other assets, you can only benefit from price rising.  This doesn’t help you during bear raids.  With Contracts For Difference you can both ‘buy’ and ‘sell’ meaning if you think an asset price is going to fall, you can go short and gain from that fall if it were to happen.

If you are trading from within the UK you will also benefit from foregoing stamp duty on any trades.  This is handy if you regularly invest into company’s stock as it will cave you 0.5% of the total trade’s value.  You will be liable for other forms of tax though so if you are based in the UK then you might want to consider spread betting as an alternative.

Summary

Although it can be beneficial to trade CFDs or even use them as an investment vehicle, they are harder for the novice investor to pick up and get into.    There are a number of differences to the more traditional methods of investment although if used carefully, they are extremely beneficial.

If you are considering trading CFDs but have never dealt with derivatives before it would be in your best interests to open a practice account to learn the how they work before risking real money.

From our end we have scoured the market for the leading and most competitive contracts for difference (CFD) accounts available. Selecting the right CFD provider from our specially chosen partners will help you buy, manage and negotiate your CFDs to make the most of your investments. We have done this by allowing you to clearly view and easily compare the various CFD account rates of our different providers. All of our partners are authorised and regulated by the Financial Conduct Authority (FCA).

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