The CFD (Contracts for Difference) is a “Financial Contract for Difference”, where two contractual parties exchange cash payments (differences), depending on the price/rate of the subject of the contract between the moment of conclusion and the termination of the contract. CFDs are products that basically have any financial instrument whose value is variable.
They offer a broad range of CFD CFDs, US Treasury bonds, currency pairs, commodities and stock indices, such as the FTSE100, which consists of stocks of the largest companies in the United Kingdom.
The contract also has a ‘buying’ and a ‘sales’ price so that you have the option of choosing – to “buy”, also known as a long position, or “sell”, known as “taking a short position”. It is important that you know that you are trading through a contract for a difference, not a physical asset in the primary market. On the other hand, you have the flexibility and the ability to use orders to stop possible losses through the so-called. STOP order.
Financial contracts for differences are instruments to which the effect of a financial lever is applied, i.e. leverage. This means that by placing a small amount of the deposit (required margin), you get a much greater exposure to the market. In other words, in order to open the position, you need to invest a far smaller percentage than the full value of the trade.
Margin trading allows you to increase the yield faster if the price/course is in the desired direction for you. Otherwise, losses are also multiplying. Potential profits come with significant risks.
For example: When you trade CFD, you have to pay for the front, which implies a difference between the purchase and the selling price. You enter the shopping store using the stated purchase price and exit on the basis of the selling price. The lower the lower, the lower the need to move prices to your advantage before you start to make a profit. We offer competitive battles.
Stock Keeping Costs: At the end of each trading day (at 17 o’clock in New York time), all positions open in your account may be in charge of the so-called swap rate “inventory costs”. The inventory costs may be positive or negative, depending on the direction of your position and the applicable holding rate.
In each market, both sides of the ‘buying’ and ‘selling’ prices of the basic market price are given. You can trade on a long-term market (known as ‘buying’), or you can trade with taking a short position (known as “sales”).
Once you open a position, you will receive a message confirming that it is accepted. If the CFD market is closed, the opening of a position can be denied. Also, it may be that the opening of the position is rejected for other reasons, but the vast majority goes through the procedure without any problems. Check carefully the details on your confirmation message to make sure that the store is the way you intended it.
Your open position will appear in the “open position” section of our trading platform. All the while your position is open, you will be able to see your profit or loss by checking the Profit / Loss column.
When you decide, you can close your position and raise your profits, and to do so, you simply sell the same number of contracts that you originally purchased.
The simplest way to do this is to open the “close-up” screen. When you click on ‘I’m selling’, you’ll get one more confirmation to know that you’ve sold that number of contracts.
For example, I currently have an open dollar/yen (USD / JPY) position. I took a long position, that is, bought the dollar in the expectation that it would strengthen against the Japanese currency. However, the opportunities are changing and I now question whether I have acted well.
Usually, I would have two choices – to close the position now or to keep it open and I am dealing with the uncertainty brought by the future. However, with the CFD, it can simultaneously open another position in the dollar/yen currency pair in which I sell the dollar, or I take a short position on it. So, I open a completely opposite position from the originally open, which is still open. Thus, these two positions, for the most part, come under the assumption that there has been no significant shift in the exchange rates of these two currencies and that the size of open positions is identical.
So, no matter how the currency pair moves in the future, I will still be able to foreclose the loss with a win in the opposite position. My hedge protects me.
Source: SGT Markets