CFD – Contract for Difference
Contracts for difference (CFDs) are flexible financial instrument designed to give independent investors access to a wide range of global assets, including stocks, commodities, forex and indices positions, with no requirement to buy any of the underlying assets.
Opteck traders can enter into leveraged contracts on over 1,000 of the world’s best-known assets by opening a position at a specific price. When the position is subsequently closed, the difference between the opening and closing prices constitutes the trader’s profits or losses. CFDs can offer potential returns on investment, but you can also lose all or part of your invested fundsю
CFD Online - Trade Global Assets
Newcomers to CFD trading are sometimes confused by the term ‘contract for difference’. They wonder if they have to negotiate or sign an actual contract with a broker in order to open a particular trade. Fortunately, CFD trading is very transparent and convenient; the name contract for difference is derived from the way that profits or losses are calculated on each trade.
Contract for Difference – A Quick Explanation
When you trade a CFD online there is no need to actually buy the asset that you are trading. You are trading on the price movement of the asset.
- Choose an asset. This could be a forex currency pair, commodity, stock or share, or index.
- Decide how much to invest on the trade and whether to use leverage.
- Open a BUY position on a desired financial asset which you believe is under-priced.
- Close the trade when you believe its value is fairly priced - and vice versa on a SELL position.
The difference in the two values (initial and final) is your profit or loss and it credited/debited straight from your trading account.
The financial markets are inherently volatile and can respond to global events in just seconds. This creates enormous opportunities to potentially profit from CFD trading, but also creates clear risks.
Successful traders practice risk management in an attempt to mitigate risks from the investment process. Effective risk management begins with effective fundamental analysis and a clear understanding of the current economic and political situation. The Opteck Daily report keeps traders abreast of the global situation and helps them to prepare for any changes to the markets.
The Opteck trading platform also contains a number of other tools for risk management including:
Set your trading account to automatically close any trade that incurs losses. The stop loss tool gives you the freedom to let trades run without continually monitoring them.
Set your trading account to automatically close any trade that has achieved your desired level of profit. This means that your profits have been locked should the asset price subsequently fall. The take profit tool gives you the freedom to let trades run without continually monitoring them.
These risk management tools are explained in detail in the Opteck education center which is free to registered traders.
“Leverage” enables you to command positions that exceed the value of your equity. Any time you use a financial instrument such as a CFD or leveraged products to make an investment that exceeds the value of your capital, you are using leverage. Leverage is expressed as a ratio.
Leverage can be also expressed in percentage and can be referred as the initial margin requirement. For example, a leverage of 1:20 expresses an initial margin requirement of 5% and a leverage of 1:50 expresses an initial margin requirement of 2%.
“Maintenance Margin” is the amount currently used to maintain your open positions. In order to keep your open position/s active, you must ensure that your equity exceeds the maintenance margin level. Otherwise the position will automatically close. Can also be expressed as the minimum capital you must have in the account so that you do not receive a margin call/stop out.
The maintenance margin level requirement is specific for each financial instrument and can be found under asset details in the trading platform.
Margin and margin calls are explained in greater detail in the Opteck education center.
The education center is free to registered traders.
Should I Trade CFDs Online?
CFDs are a very flexible financial instrument. They are transparent and convenient to online trading beginners, and can offer to experienced trader the chance to make a potential return. The Opteck trading platform is designed to be accessible to traders of all experience levels and immediately connects you to the Global financial world.
If you want to become an independent investor, CFDs could be for you. The Opteck Academy will help you to develop a detailed knowledge of the financial markets and implement professional trading strategies.