Understanding CFD/Forex trading
Contracts for Difference (CFD) give traders all the benefits of owning a particular
stock, index, or commodity position without having to physically own the underlying
instrument itself. It's a simple, easy and cost effective trading option.
In simple terms a CFD, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract. CFDs are derivatives products that allow you to trade live market prices and take advantage of price movements without physically owning the underlying instrument on which your contract is based. You can use CFDs to speculate on the future movement of market prices regardless of whether the underlying markets are rising or falling.
CFD trading works like this
Eg: Instead of purchasing EUR 10,000 from a money exchanger, a customer could instead open a trade of 10,000 EUR/USD on GLBMarkets.com. A 100 point rise in the price of EUR would give the CFD customer a $100 profit. Alternatively, a 100 point drop in the price would mean a $100 loss for the customer, exactly as if the trader had bought the actual currency through a Money exchanger.
CFD's are also used to hedge clients physical porfolio
Eg: If you believe your existing portfolio may lose some of its value, you can use CFDs to offset this loss by short selling. For example, let's say you hold $2,000 worth of Facebook shares in your portfolio. You can short sell the equivalent of $2,000 worth of Facebook shares through a CFD trade. Should Facebook share prices fall by 5% in the underlying market, the loss in value of your share portfolio would be offset by a gain in your short sell CFD trade. Many investors today use CFDs to hedge their physical portfolio, especially in volatile markets.
Benefits of FOREX/CFDs trading
Online CFD/Forex trading is gaining immense popularity Globally and is the Best way
for clients to trade. The main reason is the ease and benefits of online Forex
There are numerous advantages to trading Forex/CFDs online
2 Way Market
With CFD trading, you can profit no matter which way the market moves. You can use CFDs to go “Short” (SELL) when you believe the asset price will fall or you can go “Long” (BUY) when you expect prices to rise. Based on your trade you can gain/lose according to the price movement in correlation to the trade executed by you.
If you Buy an asset and the price rises you gain if it falls you lose alternatively If you Sell an asset and the price falls you gain if it rises you lose.
Online trading allows you to take advantage of Leverage meaning you can trade higher volumes of assets at low cost since you do not pay the full price of the asset but only maintain a margin starting from just 1% of the deal size. Hence with a deposits as small as $200 you can buy and sell assets worth $80,000 with GLB Markets. Leverage needs to be used carefully since it's a double edged sword it can magnify profits as well as losses.
Flexible deal sizes
Forex/CFDs trading provides clients flexibility while trading, you can decide if you want to use leverage and how much you want to use. Online trading enables you to take small and odd-size lots which is normally not possible when dealing with the asset in the Stock Market or Physical Exchange.
There is High Liquidity at all times in the Forex market this means you can execute trades instantly. There are so many buyers and sellers in the market at all times that opening/closing deals immediately is easy and quick.
Access the Largest Financial
The Forex markets is the largest financial market in the word with a daily turnover in excess of $3 billion, the market was earlier not open to small traders and was reserved only for Banks, large hedge funds and very wealthy traders. Now beginners and small traders can access and benefit from trading in this global market with low investment amounts thanks to the internet and forex brokers like GLB Markets.
The Forex market has high volatility this means throughout the day there are numerous trade setups for clients to take advantage of. Major currency pairs move an avg. of 100 - 150 pips (points) in a day this means many profitable opportunities for clients to benefit from.
No Expiry on Forex
There is no expiry dates on Forex contacts which means that there is no pressure on clients to close the deal before or on a particular date. Most physical exchanges have a contract expiry date on which the deal would close even with a loss. In online trading as long as clients maintain sufficient margin in the account the deal will not expire.
Diverse assets to
Trading in Forex and CFDs provides you access exposure to markets you may not have had access to before. It allows you to trade in various global instruments and expand your portfolio. Clients can trade in commodities, currencies, indices and shares from all across the globe all through online trading on one single platform.
24 hour Market
One of the key benefits of Forex trading is that they are trading a global market with participants from all over the globe, this enables clients to trade 24 hours a day 5 days a week at their convenience.
Low transaction cost
Forex trading offers clients an unmatched benefit in terms of low cost of trading. The transaction cost to trade CFDs is very low, the clients are charged just a spread which is the difference between the Buy & Sell price this could be as low as 0.02%. On buying/selling currency of $10,000 clients could be charged as low as $2 in spread charges. We at GLB Markets do not charge clients any commission apart from spreads unlike most other STP brokers.
However please note that CFD/Forex trading is high risk/high reward, and it is possible to lose your entire capital. Please be aware of the risks involved and trade wisely.