An Introduction To CFD Trading (Part 1)
Here's a really simple yet useful tutorial on CFD trading that will get you up and running very quickly if you're new to CFD trading. By the time you finish this article, you'll know how CFDs work, what makes them highly profitable, and understand the costs involved in CFD trading. CFD stands for Contracts For Difference, which is a derivative product, where you profit from changes in the prices of stocks and shares. For example, if you buy a CFD on a stock that's $5.00 and the price rises to $5.50, then you profit from that change in price. So if you bought 1000 CFDs, then your profit is $500. That is, the value of the CFDs mirror the underlying stock prices, and you can profit on this movement. The reasons why CFDs are a very popular trading product, and understandably so, are: 1. CFDs are traded on leverage, and this leverage is typically 10 to 1, with some CFD brokers providing 20 to 1 leverage. This means that a trader with a small float can make decent profits from trading the stock market by using CFDs. For example, you may have a stock trading system that makes a 30% return per annum. On a $5000 float, this is $1500 profit in one year. With CFDs, because of the leverage, the same system can now produce a 300% return, which is $15 000 profit in one year. 2. You can just as easily short sell CFDs as well, and therefore profit from falling markets. This greatly increases the profitability of a trading system because trading opportunities increase dramatically, and the fact that you can profit from both bull and bear markets. 3. The costs in CFD trading are relatively low when compared to stocks. This is especially so, since for a similar and often smaller cost per trade, you can gain 10 or greater times the results from a trade due to the leverage available. The 2 main costs in CFD trading are interest and leverage. We'll come to these in a moment. 4. You can set automatic stop losses. This means that it will take you less time to trade, remove the emotion from exiting a trade when you should, and allow you to exit as the stop is hit, not a day later. You therefore avoid the slippage due to getting out of a trade later than when you intended. 5. You can place all your orders in the evenings. With many CFD providers, you can place orders to enter a position the night before. For people who are working, this is a great advantage as they can do all their trading (place their orders to enter and their stop losses) in the evenings, and not need to be at the computer screen or call their broker during the day. Also, if they have any stop losses that need adjusting, they can do so in the evenings as well. Their trading routine with a mechanical system can be about 10-15 minutes per day. So these are the advantages of CFDs that have made trading accessible to so many people because they provide large returns for a modest float, and can also be traded once a day as well. Now, we mentioned that there are 2 main costs in CFD trading. Let's have a closer look now at each of them: 1. Commission. With some CFD providers, there is in fact no commission. This also greatly increases the profitability of your CFD trading systems, as well as the fact that you can benefit hugely from the leverage. With other CFD providers, there may be a commission of say 0.15% of the trade size or $15, whichever is greater, each way. These costs are similar or less than the commission associated with stock trading, especially when you consider that the multiplied profits that the leverage gives you. 2. With CFDs, there's interest charged for long positions that are held overnight. For short positions, the interest is paid to you. The amount of interest charged is usually a reference rate plus approximately 2%, and the interest paid is usually the same reference rate minus approximately 2%. And the reference rate is usually a major bank's overnight interest rate. For example, the interest rate charged for overnight held long positions may be 7.5% or 0.075 per annum. To calculate how much this is for a trade, we need to make it "pro rata". That is, we'd need to divide the 0.075 by 365, multiply it buy the number of days in trade, then multiply it by the trade size. For example, for a trade size of $10 000, held for 14 days, the interest cost is about $28. Not a huge cost. For a short trade, the interest is paid to you, so will offset the cost rather than contribute to it. So there you have it. You now understand the benefits of trading CFDs and why they're a trading instrument that allows people with a modest float to make very decent returns, as well as understand the costs involved with trading CFDs. To learn more about CFD trading, watch out for part 2 of this article. If you'd like to learn more now about CFD trading, go to this page with a comprehensive tutorial on CFD trading: http://www.thecfdtrader.com/cfd-trading-tutorial.php About The Author: Kurt Magnussen makes it easy to go from CFD novice to learning the keys to successful CFD trading, quickly & easily. To get more valuable tips and hints on CFD trading, visit this website on CFD trading. Go there now to grab your tutorials! |
Other Trading System Articles
Forex Day Trading Systems Usually, we associate trading with purchasing a commodity, bringing it home or to our business premises, and then selling it. Similarly, we purchase stocks and shares in the stocks and shares market, hold them until their value increases and then sell them off.Times have changed, and now trading can be done on a daily or even hourly basis ...Ten Ways to Manage a Rapidly Growing Business While some new business owners face the issue of not enough customers, others face the issue of too many customers/clients. Both are serious issues and must be dealt with carefully. There are many lists on how to find new customers/clients. Here is a list of 10 ways to deal with a rapid influx of new customers. The goal is a steady flow of j ...Is the Sun Shining for Sun Microsystems? If you invested in the technology sector during the late 1990s, you probably became very encouraged from the amazing capital gains you earned during this time period. Sun Microsystems (SUNW) is no exclusion this system, reaching record highs in of 80.00 in 2001. However, like most of the rest of the technology sector, Sun experienced losses hurt ...How to Get a Lower Blood Pressure Using Medical Treatment The treatment for lowering the blood pressure is usually recommend by physicians for patients with a blood pressure of above 160/95mmHg. For those with a blood pressure immediately bellow these values it is taking into account age, sex or other individual factors of the patients before taking the treatment.The first kind of treatment reco ...What Do You Know About Alarms? Alarms have definitely become a part of our lives. Ranging from car alarms to the more humble fire alarm these devices have entered every imaginable corner and reassure us that we will at least be warned if something bad happens.The most important leap in numbers and use of alarms can be seen in the field of home security. The burglar ala ...The World Doesn’t Need Another Math Textbook I know this statement is shocking. Some of you may feel that I have announced the end of the civilization as we know it. How in the world will people learn math without the latest and greatest math textbook. The answer is simple. The same way people have always learned math prior to the modern education system, by doing math as they go about the ...Arbitrage Trading Reviewed 2006 I am sure many of you have never herd of sports arbitrage trading, or know very little about it. If you are into making money working from home or are looking to make extra money working out of your house you can accomplish this with arbitrage trading.So what exactly is sports arbitrage trading? That’s a good questions that many fi ...Condom Sense: Condoms and the Environment So you are smart enough to practice safe sex (preventing both pregnancy and STDs) by properly using a condom. But what do you do with the condom when you are done with it? Here are some hints on environmentally-friendly condom disposal.Firstly, don’t flush your condoms, ever! Flushing condoms is not the way to deal with them. Condoms ...Horse Racing Betting, The Risk Free Way You may or may not of heard of all this talk about been a change to horse racing betting where you can bet on horse races risk free.Yes that’s right, Risk Free!Now this isn’t some bogus system that gives you one horse that is guaranteed to win, it isn’t even like normal gambling. It’s more like trading as you are betting on more th ...What Drives Foreign Currency Movement? Economic factors are the main stimulus behind currency movements. These factors can take many different forms, and often speculation surrounding a particular event can move currency rates as much as if the event actually happens.Often we hear of figures being released regarding sales, housing, employment or industry, but what do they actu ...Trading Plan: A Roadmap To Trading The Markets Having a trading plan is similar to having a map when traveling to a new location. Modern day vehicles often come with a navigation system making it easier to travel with the fastest route. A trading plan acts as a road map for the trading day.Most new traders trade without a plan. This often causes reckless trading, emotional trading, an ...How to Treat your Arthritis Naturally How to Treat your Arthritis Naturally Arthritis is pain in the fingers, knees, elbows, hips jaw-any place in the body where there is a joint between bones. It can be very painful. This because joints are surrounded by many nerves and the nerves are needed to make the complicated joints work properly. There are many forms of a ...The Sneaky Way To Managing Losses In Your Forex Trading One of the cardinal rules of Forex trading is to keep your losses small. With small Forex trading losses, you can outlast those times the market moves against you, and be well positioned for when the trend turns around. The proven method to keeping your losses small is to set your maximum loss before you even open a Forex trading position. The m ...Currency Trading – 5 Steps To Trading Success Currency trading is all about trading the right way to achieve currency trading success. It’s a blend of various inputs that will make you successful. Get just one of them wrong and you will lose.This article is for both novice traders who have never traded before and seasoned traders who want to achieve greater profits.Here are th ...Why Choose Forex Trading Over Stocks Trading Forex trading holds significant differences to stocks trading. Understanding these differences will aid a trader in deciding the right market to enter. Forex trading itself has several advantages over stocks trading and is ideal for the beginner and individual small investors.1. Low Transaction Costs for Forex Trading. There are no h ...Evaluation II As I said in Part I everyone in the insane asylum looks normal, but at least the doctors are sane. Unfortunately, in the insane asylum known as the stock market all the doctors (brokers) are also insane.The doctors in the insane asylum went to medical school to learn how to treat the patients so the could get well. On Wall Street you go t ...Precious Metals Prices Aside from the practical and decorative uses of precious metals, the demand for these is driven also by their role in investments. Investors often use precious metals as hedges and definitely rate high in terms of trade price stability in the commodity market. This will hold true unless the demand for precious metals is lowered, although this ma ...Divorce: How To Survive A Divorce And Move On With Your Life One out of every two marriages in America is failing.American families are crumbling and vanishing.Most families have become dysfunctional, and it is widely becoming fashionable to come from a dysfunctional family.Divorce is on the rise all the time.Your self-esteem - what you think of yourself in relation to other p ...North America’s #1 Ranked Fund Manager Names His Favorites StockInterview: How do you feel about uranium, which fuels nuclear reactors and generates electricity, and the uranium bull market for stocks that we’re in right now?J-F Tardif: We are very bullish. We’re extremely bullish on uranium as a firm, not only for uranium, but we’re also very bullish on energy. Everything is inter-connected beca ...Become Rich From Working Online I am sure most of you have searched the Internet and seen people who have made their million-dollar empire from working online. Everyone tries to become this person by buying up e-books or promoting someone else’s product. I have tried them all. I was and affiliate, I bought tons and tons of e-books on how to create wealth working from home. ...Road Warrior At Risk: The Dangers Of Ad-Hoc Wireless Networking Airport Menace: The Wireless Peeping Tom ---------------------------------------- As a network security consultant, I travel quite frequently. At times, it seems like the airport is my second home. I actually like to fly, it's a moment in time where no one can reach me by e-mail, or mobile phone.It never fails that something in ...Why Pegasus Opera II is the best Accounting Software Pegasus Opera II is the best accounting software on the market. Why? Well for one it is one of the leading providers for financial management. It is ideal for small to medium-sized businesses. Obviously choosing the right type of accounting software can make a huge impact on any business. And also choosing the wrong software can have devasta ...Raped and Pillaged by Computers, The Saga of an Ebay Victim April 11 of this year I was shopping for bed linens on the internet. I found some sheets on Ebay that seemed to be wonderful items at reasonable prices. One of them I liked was described as “Court of Versailles Queen Fitted Sage Sheet”. My bedroom is done in sage colors. Nothing could have seemed more perfect. The picture of the sheet was quite ...Stock and Options Millionaire Principles INTRODUCTIONHaving been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.I have seen paupers become millionaires overnight…AndI have seen millionaires become paupers overnight…One story told to me by my mentor is still etched in my mind: ...Introduction to Forex Trading Forex is an abbreviation for Foreign Exchange, the system by which one currency is exchanged for another. For such reasons, an exchange rate needs to be established between currencies of all countries. Generally, all currencies are expressed in terms of U.S. dollars, while the U.S. dollar itself is commonly quoted in the Japanese yen, British po ...South African History [The British Colonial Era] - Part 2 In 1795 the British occupied the Cape as a strategic base against the French, controlling the sea route to the East.After a brief reversion to the Dutch in the course of the Napoleonic wars, it was retaken in 1806 and kept by Britain in the post-war settlement of territorial claims. The closed and regulated economic system of the Dutch pe ...Five Forex Trading Tips You MUST Know Jumping into Forex trading with both feet? Here are five must-know tips on forex trading and mini forex to help you stay afloat in the Foreign Exchange currency market.Know your forex trading market. Educate yourself about the currencies that you trade. The more you know about the country whose currency you’re trading in the forex mar ...Advisory News Letters Several times each month I am solicited by various market touts who have a newsletter service, faxes or emails they are willing to send me to make me rich. That sure is nice of them.The first thing that pops into my head is if this system is so good why are they willing to share it for the lowly sum of $19.95 per month. Of course, some of ...Switzerland as an Offshore Jurisdiction Thinking of using Switzerland as an offshore jurisdiction, think again!The following comes from the Swiss embassy page and speaks for itself showing clearly that Swiss banking secrecy is not what it used to be.Bank Secrecy FactsBanking secrecy does not protect criminal or illegal activitySwiss banking secrecy is in no ...
|
