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Trading For Beginners

Contracts for Difference (CFDs) are an over-the-counter (OTC) derivative product that allows trading the price movement of an underlying asset without physically owning the asset. When trading CFDs investors, enter into an agreement with another market participant (eg. a broker) with a view that the price of the underlying asset will rise or fall. The profits or losses will depend on the difference between the opening and closing prices, as well as the size of the trade position.

CFDs are traded in contracts or in fractions of a contract. The contracts represent the quantity of the underlying asset that is being traded, and it may have different denominations (standard, mini micro). For example, one contract of Crude oil is equivalent to 1,000 barrels.

CFDs can be traded on leverage, meaning that traders will only need to pay a small amount, or margin, to control a much larger position in the market. For example, if a broker offers leverage of 200:1, a trader with $1,000 can control a trade position worth $200,000 in the market. However, just as high profits can be earned through leverage, large losses can also be incurred in case market predictions were not correct.

CFD prices are quoted in a pair: bid and ask prices. Bid price is the highest price a buyer is willing to pay, and the asking price is the lowest price a seller will accept. The difference between the two is the cost of trading a CFD known as ‘the spread’.

  • No Commissions: Not owning the underlying asset and not acquiring any rights or obligations means that there are no Exchange Fees.
  • Leverage: Significantly less capital is needed to open a trade in comparison to owning the underlying asset.
  • Benefit from rising and falling markets: By opening short or long positions according to the market conditions and your overall strategy.
  • Hedging: A buffer for your trades in case the asset price is not going in the intended direction.

  • Leverage: While CFD trading can amplify profits on trades that move in your favor, it can also magnify losses on trades that go against you.
  • Margin Call: Occurs when the broker requires an investor to deposit additional funds to cover losing positions in the market or he will close out the losing position to protect the trader’s balance from going into the negative zone.
  • Volatility: In periods of high volatility in the market, the costs of trading can increase in the form of wider spreads which could impact short-term trading strategies and decrease profit margins.

Commodities

Commodities are basic items of consumption of the worldwide economy. Raw goods are used in business, but when traded on an exchange it must meet standards and grades. There are four main types of commodities: Soft, Hard, Energy and Grains. Two of the most popular traded commodities are gold and oil. While future contracts are the traditional way to trade those commodities, it requires a large upfront investment. This could be easily avoided by using CFDs to trade commodities as liquidity is never an issue and you will have the ability to control the leverage

  • Soft: Soft commodity refers to commodities that are grown instead of mined. They include coffee, cocoa, sugar, and cotton.
  • Hard: Hard commodities are types of natural resources that need to be extracted. It includes gold, silver, and other precious metal. They form the basis of the economic health of a country, and global demand for such resources can be monitored to predict the future stability of an economy.
  • Energies: A highly active type of commodity due to its unique identity. It includes petroleum, natural gas, heating oil, crude oil, and coal.
  • Grains: The most traded commodity, it includes wheat, corn, rice, oat, and soybean. Usually sold as future contracts, this type of commodity has a minimum as well as a standard contract size.


  • Supply and Demand: Any time the market predicts lower supply prices tend to go higher, and vice versa; higher supplies tend to lead to lower prices.
  • Stock and Inventories: Production can be affected by weather, crop diseases, production issues with staff, political and economic environments which form additional charges such as taxes, trade laws, subsidies from governments, etc.
  • Currency Strength: Connections between some of the world's most traded commodities and Forex pairs are common. Commodities are usually priced in US dollars - it would be wise to monitor the Dollar index to better forecast the commodity price dynamics.
  • Inflation: When economies experience inflation, the prices of commodities tend to go up.

  • Protection against inflation: During inflation, prices of the stocks fall, and prices of commodities required in the manufacturing of finished goods substantially rise due to the growing demand, which ultimately results in the rising prices of final goods. Hence, commodity futures are used to protect capital from the effects of inflation and maintain portfolio value.
  • Hedge against risky geopolitical events: Conflicts, riots, and wars disrupt the supply of the raw materials, which results in a mismatch of demand and supply, causing the prices of the commodities to rise exponentially. Such events will cause stock prices to fall drastically, hence investing in commodities can help stem losses in an investment portfolio.
  • High leverage facility: Commodity derivatives like futures and options provide an exceptionally high degree of leverage. Any insignificant move in the prices of the commodities can result in exponential gains.
  • Diversification of risk: Precious metals can be used as a safe outlet when markets are under stress. Often Gold is negatively correlated to the USD and US stocks.


  • Chicago Mercantile Exchange (CME): Crude oil, natural gas, ethanol; gold, silver, copper, platinum, palladium; corn, wheat, soybeans, live cattle, lean hogs. Intercontinental Exchange (ICE): Crude oil, gas oil, natural gas; cocoa, coffee, cotton, sugar. Shanghai Futures Exchange (SHFE): Fuel oil; gold, copper, aluminium, zinc; rubber.
  • Intercontinental Exchange (ICE): Crude oil, gas oil, natural gas; cocoa, coffee, cotton, sugar.
  • Diversification of risk: Fuel oil; gold, copper, aluminium, zinc; rubber.
  • Diversification: Precious metals can be used as a safe outlet when markets are under stress. Often Gold is negatively correlated to the USD and US stocks.


Forex

Foreign exchange, more commonly known as Forex (FX), is the largest financial market in the world with approximately 6$ trillion traded daily. Trade FX with CPT International to take advantage of the moving major, minor, and exotic pairs.

Unlike other markets, you can always find buyers and sellers in the Forex market. Currencies are traded 24 hours, five days a week from Monday to Friday. Trading begins in Australia, followed by Asia, Europe, and lastly the US market. The only market that will be open during the weekend is the cryptocurrency market. Most of the Forex trades are executed during the NY-London sessions, especially when they overlap. During these few hours, the forex market is usually the most liquid, meaning that transaction costs will usually be lower than when trading outside this overlap. The trading time during the summer is Sunday at 9:00 pm to Friday at 9:00 pm GMT. In the winter, it is from Sunday 10:00 pm to Friday 10:00 pm. This results in currencies being constantly traded.

Currencies need to be paired with another currency to form a currency pair. The currencies in the pairs are referred to as ‘one against another’. The exchange rate reflects the price of the first currency expressed in terms of the second one, for example, EUR/USD, If the EUR goes down against the USD, then the USD goes up. If the EUR/USD pair trades at 1.20, this means that 1 euro will buy you 1.30 US dollars, or you need 1.30 US dollars to buy 1 Euro.

  • Major pairs: These pairs always involve the USD, and are the most traded ones. The seven major pairs are EURUSD, USDJPY, GBPUSD, USDCAD, USDCHF, AUDUSD, and NZDUSD. The most popular pair traded is the Euro vs. the American Dollar or EURUSD.
  • Minor pairs: The major currencies are traded between each other, excluding the USD, for example, EURGBP and GBPJPY.
  • Exotic pairs: Have one major currency and a minor one, for example, EURTRY and USDNOK.


Exchange rates are usually expressed in four decimal places, the last decimal place being a pip. A pip is the smallest increment that a currency pair can change in value. For example, a EUR vs.US dollar pair rises from 1.2000 to 1.2015, which would represent an increase of 15 pips.

The major currencies are from the most powerful economies around the globe:

  • US dollar (USD)
  • Euro (EUR)
  • British Bound (GBP)
  • Swiss Franc (CHF)
  • Canadian Dollar (CAD)
  • Australian Dollar (AUD)
  • New Zealand dollar (NZD)
  • Japanese Yen (JPY)


  • Spot forex market: This is where a physical exchange of the currency pair occurs when the trade is settled. It is mostly banking and large institutions that take part in the spot market, but brokers might offer derivatives based on the spot forex markets.
  • Forward forex market: Private agreements to buy or sell a certain amount of currency at a specific time.
  • Futures forex market: Like the forward forex market, the contracts can be traded on futures exchanges.


Indices

An index reflects the health of a market or an economy. Trading an index enables mirroring of the movements of an exceptionally large segment of a market, or even an entire market. For example, trading the Dow Jones (Dow) means trading in a significant portion of the industrial market. When trading a stock index CFD, traders’ profits can be made on both rising and falling prices.

A Stock index is a statistical measure designed to track the performance of a group of stocks. Broad market indices reflect the collective value of the top 500 companies listed on the stock exchanges while specialised indices cover specific sectors or industries, such as financials or technology. The value of an index reflects the average performance of individual stocks that make up that index. An increase in price means that most of the stocks in that index have increased in value.

  • Leverage: The leverage possible with Index futures contracts creates a profitable environment for even a few percent of index gain.
  • Technical Analysis: Analysing one chart rather than thousands of stocks, looking at the big picture and overall market sentiment.
  • Spreads: Highly liquid market means tighter spreads.
  • News-Based Strategy: Indices are the best reflection of the broad economic effects of both political and economic shifts. Traders just need to express a broad market view by taking either a bullish or bearish position, depending on prevailing market sentiment.
  • Risk-Averse: Easy and effective diversification. Indices offer exposure to the entire stock market index, while simultaneously reducing the risk of a single company negatively impacting the entire trading portfolio.


  • Economic News: Employment, wage numbers, and industry-specific headlines, such as mining numbers.
  • Announcements and Events: Company earnings reports, leadership changes, buyouts, and mergers.
  • Commodity Prices: Fluctuations in the commodity market such as oil can impact several major indices.
  • Composition Changes: Price fluctuations due to investor sentiment changes driven by the inclusion and removal of certain companies.


  • US500: Built from the share prices of the 500 leading U.S.-based companies
  • US30: Also known as the Dow Jones index. The price-weighted average of 30 of the most significant stocks that are traded on the NASDAQ and New York Stock Exchange (NYSE).
  • US_Tech100: Represents the value of 100 non-financial NASDAQ-traded companies.
  • FTSE_100: A collection of 100 of the largest publicly traded U.K. companies.
  • DJ_Euro Stoxx 50: A collection of 50 of the largest European companies’ share values.


Trading Central

We've recently partnered with Trading Central, the award-winning user interface and analyst expertise that empowers today's traders in validating suitable opportunities and optimizing their trading strategies. Trading Central is available for free when you open a trading account with CPT International and deposit 1000$.
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