CFD Trading

Understanding CFD Trading
(CFD is an acronym for Contracts for Difference). Online CFD Trading is gaining popularity among retail traders all around the world
CFD are innovative investment instruments that provide you all the advantages of buying a particular stock, index, or commodity position – without having to physically own the underlying asset itself. It’s a manageable and cost effective investment option, to trade on the change in the price of multiple commodities and equity markets, with leverage and direct execution. As A trader you enter a CFD trade at the quoted price and the difference between that open price and the and the close price when you close the trade is settled in cash – therefore the term “Contract for Difference”
CFDs are traded on margin. This means that you are geared to leverage your investment by opening positions of greater volume than the money you deposited as margin collateral. The margin is the amount reserved on your trading account to meet any potential losses from an open CFD position.
CFD Trading Example: You expect the Gold price will rise during the next few days so You decide to buy allot of 100 units of gold at a price of 1300 USD by investing 130$ with 1:100 leverage. If the price goes up, say from 1300 USD to 1310 USD, you will get a profit of 1000.
CFD Trading Explained

Buying in a rising market
If you buy a product you believe will rise in value, and your prediction is right, you can sell the product for a profit. If you are wrong in your prediction and the values fall, you have a potential loss.

Sell in a falling market
If you sell a product that you estimate will drop in value, and your analysis is correct, you can buy the product back at a lower price for a profit. If you’re wrong and the price rises, however, you’ll get a loss on the position.

Trading on margin
CFD is a geared product, which means that you only need to use a small percentage of the total value of the position to make a trade. Margin rate with CMC Markets may vary between 0.20% and 20% depending on the product. It is possible to lose more than originally deposit so it is important that you understand what the full exposure and that you use risk management tools such as stop loss, take profit, stop entry orders, stop loss or boundary to control trades in an efficient manner.

CFD prices are displayed by the CFD brokers in pairs, buying and selling rates. Spread is the difference between these two rates. If you think the price is going to go down, please use the selling price. If you think it will go up, please use the purchase price. For example, look at the UK 100-heading, it may look like this:

UK 100 6300/6301
Buy to 6,301 if you think UK100 will rise in value.
Sell to 6,300 if you think UK100 will fall in value.

In this example, the spread of UK 100 1 point.

You can find an overview of the costs associated with CFD transactions under transaction costs.
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