Explore CFD Trading: A Powerful Platform For Skilled Traders

A Contract for Difference (CFD) enables you to open a trading position for the change in the price of an instrument, from the moment of initiating the trade to when you reverse and close it.

• Notably, CFDs are leveraged products, implying that positions only require a tiny margin deposit to incur a significantly larger market risk exposure.
• This leverage is a two-way sword with magnified benefits and risks: your initial deposit can generate out-sized returns and losses.

CFD trading permits you to initiate a position on the future value of an instrument, to capitalize on a price movement up or down. In this manner, investors are able to use unique forex trading strategies Thus, the inherent flexibility and financial leverage of CFDs also requires a sophisticated grasp of risk management and attention to market gyrations. While trading over the internet in general is an abstract process, CFD trading platforms are somewhat unique, offering transactions in which no transfer of ownership takes place.

CFD Trading Platforms

While CFD trading initiated on public exchanges, the rise of cloud computing capacity and explosive internet bandwidth allowed for the growth and flourishing of proprietary CFD trading platforms. This elimination of a public exchange allowed for transaction fee-free trading and a more personalized experience. Furthermore, the rise of a mobile ecosphere / environment has created a vastly enlarged community of Apps, both on Android and iTunes.

The breadth and variety of experiences available to traders using mobile cfd trading platforms is significant and therefore requires individual traders to personally review the offerings and evaluate how appropriate a given technology is for him.

Among the minimum features that traders expect in their mobile experience are:
professional trading functionality with a simple user-friendly interface.

• The full spectrum of the world’s most widely-traded financial instruments.
• Fast and efficient order execution.
• Access to real-time quotes including: forex pairs, indices, commodities such as oil and gold, and widely-traded stocks.
• Buy and Sell CFDs online: shares, NASDAQ stocks, NYSE and many more equity exchanges.
• Initiate and terminate positions, set limits to manage your investment risk exposure.
• View your equity, margin, and balance.
• Full support in a variety of languages.
• Real time signals and charts.
• The ability to use credit cards wire transfer and the whole range of digital wallets to manage your account balances.

Forex Trading Strategies

The following example shows how a Euro – US Dollar (USD) position actually is initiated and closed:

A trader seeks to buy euro against USD. In the transaction / quotation he views a current Bid and Ask price similar to the demonstration line below:

1.0952 / 1.0957

The spread is the difference between the bid and ask values. Position holders can sell at the bid price and buy at the ask price. For the euro/dollar pair, a change in value of  0.0001 is referred to as a one pip change. Here we see the bid – ask spread as five pips.

To buy euros, the investor should establish a transaction volume (for instance, 2 lots which equals 200,000 euros) and then press the “BUY” button. The result of the operation will be reflected in the application (desktop or mobile) “Trade” window .

If we assume that the price has risen and the new values are:

1.1052 / 1.1057

The trader is satisfied with the position profit and decides to realize his gain. To do so, he must determine his closing position and click “Close on the current price”. The closing of the position (that is, selling the previously purchased euro) will occur at the price of the BID that is 1.1052

This transaction generates the following economic cash flows:

• The trader will have bought 200,000 Euros (2 lots) at a price of 1.0957 by spending 200,000 * 1.0957 = $219,140
• The trader will have sold 200,000 Euros at a price of 1.1052 and received 200,000 * 1.1052 = $221,040
• The difference of the transaction is: $221,040 – $219,140 = $1,900 dollars
• The sum of $1,900 is the trader’s profit in this case.

The margin deposit required for this trade depends on the leverage available, which in cfd online forex trading often reaches 400:1, so the required margin in the trading account would be $219,140 / 400 = $548 or denominated in any other currency.

 

From this we see that the return on margined capital: 1,900 / 548 -1 = 246%, a phenomenal profitability rate.

And while price movements of this magnitude can easily occur within a single trading day, so can the opposite. Furthermore, CFD positions are forcefully liquidated when the margin value reaches zero, so as a rough guideline, CFD forex trading strategies recommend that traders tie up no more than 2% — 5% on any given trade.