CFD Trading – Fundamental Concepts Every Starter Must Know

CFD (Contracts for difference) is flexible way of trading, which mirrors price movements of the underlying assets that includes global financial products such as treasuries, currencies, commodities, indices, and stocks. The concept is very simple.

 

A CFD trader neither purchases nor sells underlying asset. The trader simply purchases units of the CFD. You profit when price of the underlying financial product goes up and make loss when the price goes down than the price at which the trader had purchased the CFD units.

 

Concepts of margin and leverage

 

One of the main advantages of CFDs is that they are leveraged products. For opening a position, you don’t need to deposit full value of the trade. You simply have to deposit a small percentage of the trade’s full value. It is also known as “trading on margin”. Though sellers of CFD brokers only say that returns get magnified because of “trading on margin”, it is also true that just like profits losses also get magnified. This means a CFD trader can lose more than the deposited capital. You may learn more on CFD leverage from CMC Markets.

 

Is there any cost involved?

 

There are 4 kinds of costs:

 

#1 Spread – A CFD trader has to pay the difference between buy prices and sell price, which is nothing but the spread. A trader always prefers a narrower spread. Less price movement is required for the trader to make either profit or loss.

 

#2 Cost of holding – Holding cost is charged by the broker if an open position is not closed within a single trading day, before the trading day ends. Depending on direction of position, holding cost can either be positive or negative.

 

#3 Market data fees – These fees are not fixed ones and vary from broker to broker. Check out the market data fees before registering with a CFD trading broker.

 

# 4 Commissions – If you are trading underlying stock based CFDs, brokers charge a commission on the traded units. Check out the different commissions on the position exposure of different brokers. In many cases, a minimum commission charge is there along with a percentage commission (say 0.10 per cent) on full exposure position.

 

Let’s check out some examples to get a real picture of the commissions. Suppose, a person buys 10,000 CFD units of the underlying stock of a certain company. Let every unit of the underlying stock be 100 cents and the percentage commission is 0.10 per cent. For entering trade, the trader has to shell out $12 commission charge ($12,000 x 0.10 per cent).

 

If another trader buys 5,000 CFD units of the same underlying stock at same price, the commission charge turns out to be $5 ($5,000 x 0.10 per cent), which is less than the minimum commission charge of $10. In that case, the trader has to pay the minimum commission charge of $10 for entering the trade.

 

The same commission charge is also applicable on closing trade too, where the commission is applicable on the exit price.

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CFD Trading – Fundamental Concepts Every Starter Must Know

CFD (Contracts for difference) is flexible way of trading, which mirrors price movements of the underlying assets that includes global financial products such as treasuries, currencies, commodities, indices, and stocks. The concept is very simple.

 

A CFD trader neither purchases nor sells underlying asset. The trader simply purchases units of the CFD. You profit when price of the underlying financial product goes up and make loss when the price goes down than the price at which the trader had purchased the CFD units.

 

Concepts of margin and leverage

 

One of the main advantages of CFDs is that they are leveraged products. For opening a position, you don’t need to deposit full value of the trade. You simply have to deposit a small percentage of the trade’s full value. It is also known as “trading on margin”. Though sellers of CFD brokers only say that returns get magnified because of “trading on margin”, it is also true that just like profits losses also get magnified. This means a CFD trader can lose more than the deposited capital. You may learn more on CFD leverage from CMC Markets.

 

Is there any cost involved?

 

There are 4 kinds of costs:

 

#1 Spread – A CFD trader has to pay the difference between buy prices and sell price, which is nothing but the spread. A trader always prefers a narrower spread. Less price movement is required for the trader to make either profit or loss.

 

#2 Cost of holding – Holding cost is charged by the broker if an open position is not closed within a single trading day, before the trading day ends. Depending on direction of position, holding cost can either be positive or negative.

 

#3 Market data fees – These fees are not fixed ones and vary from broker to broker. Check out the market data fees before registering with a CFD trading broker.

 

# 4 Commissions – If you are trading underlying stock based CFDs, brokers charge a commission on the traded units. Check out the different commissions on the position exposure of different brokers. In many cases, a minimum commission charge is there along with a percentage commission (say 0.10 per cent) on full exposure position.

 

Let’s check out some examples to get a real picture of the commissions. Suppose, a person buys 10,000 CFD units of the underlying stock of a certain company. Let every unit of the underlying stock be 100 cents and the percentage commission is 0.10 per cent. For entering trade, the trader has to shell out $12 commission charge ($12,000 x 0.10 per cent).

 

If another trader buys 5,000 CFD units of the same underlying stock at same price, the commission charge turns out to be $5 ($5,000 x 0.10 per cent), which is less than the minimum commission charge of $10. In that case, the trader has to pay the minimum commission charge of $10 for entering the trade.

 

The same commission charge is also applicable on closing trade too, where the commission is applicable on the exit price.

7,706 Responses to CFD Trading – Fundamental Concepts Every Starter Must Know
  1. nyc fire extinguisher inspection
    March 25, 2019 | 8:09 am

    The best and clear News and why it means a great deal.

  2. www.kcbin.Com
    March 25, 2019 | 10:56 am

    Write more, thats all I have to say. Literally, it seems as though you relied on the video to make your point.
    You clearly know what youre talking about, why throw away your intelligence on just posting videos to your site when you could be giving
    us something enlightening to read?

    my website: http://www.kcbin.Com

  3. payday loans
    March 25, 2019 | 10:56 am

    I value the post.Really thank you! Really Great.

  4. currency chart
    March 25, 2019 | 10:58 am

    I like the helpful info you provide in your articles.

    I’ll bookmark your blog and check again here frequently.

    I’m quite sure I will learn many new stuff right here!
    Best of luck for the next!

    Also visit my webpage – currency chart

  5. DMC5
    March 25, 2019 | 2:19 pm

    I blog often and I seriously thank you for your information. This great article has truly peaked my interest. I am going to bookmark your blog and keep checking for new details about once a week. I opted in for your Feed as well.

  6. DMC5
    March 25, 2019 | 3:06 pm

    Right here is the right web site for everyone who wishes to understand this topic. You understand so much its almost hard to argue with you (not that I really will need to…HaHa). You definitely put a fresh spin on a topic which has been discussed for a long time. Wonderful stuff, just wonderful!

Leave a Reply


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Trackback URL http://mynextbuck.com/cfd-trading-fundamental-concepts-every-starter-must-know/trackback/