Risk Warning: Trading Contracts for Difference (CFDs) on margin carries a high level of risk and may not be suitable for all investors. Please ensure that you fully understand the risks and take the right measures to manage your risk
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 $200,000 in the market. However, just as high profits can be earned through leverage, large losses can also be incurred in case market predictions were not correct.
CFD prices are quoted in a pair: bid and ask prices. Bid price is the highest price a buyer is willing to pay, and the asking price is the lowest price a seller will accept. The difference between the two is the cost of trading a CFD known as ‘the spread’.
Commodities are basic items of consumption of the worldwide economy. Raw goods are used in business, but when traded on an exchange it must meet standards and grades. There are four main types of commodities: Soft, Hard, Energy and Grains. Two of the most popular traded commodities are gold and oil. While future contracts are the traditional way to trade those commodities, it requires a large upfront investment. This could be easily avoided by using CFDs to trade commodities as liquidity is never an issue and you will have the ability to control the leverage
Foreign exchange, more commonly known as Forex (FX), is the largest financial market in the world with approximately 6$ 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.
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:
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.