CFD stands for Contract for Difference. These have been around for many years in different guises and are very straight forward. They are simply a vehicle to buy or sell financial products such as equities or commodities without having to put up the entire value of the trade, by trading on margin. Equity CFD trading in its present form began in the 1990s. It was introduced by stock brokers to allow their hedge fund clients to gain large downside exposure to the market using high leverage. CFDs gave them exactly what they needed with the added advantage of not having to pay stamp duty. This was the main market for CFD’s for most of the decade, until the technology boom of the late 1990s began at which point the awareness of CFD’s became more prominent. Traders then had the ability to speculate on the increased volatility of stocks using leveraged CFD’s over a short time period. Today CFD’s are available on a vast array of markets, not just equities. They are also available to the retail user at home rather than just the City professionals. Current reports estimate that as much as 25% of the UK stock market turnover is attributed to CFD trading. CFD are also beginning to be traded in countries such as Canada, Singapore and Eastern Europe.
Once you have opened an order it is possible to modify your order any time the market is open.
You can partially close your trade order by double clicking on the open order to bring up a trade ticket. On the trade ticket select the volume (lot size) of the trade you want to close. For example if you had bought 3 lots of EURUSD and you wanted to close 1 lot at the current market price you would open the trade ticket, enter 1 as the volume (lot size), and select close at market. This would close one lot of EURUSD and leave 2 lots of EURUSD open.
Indicators are price analysis tools that you can add onto your MT4 charts. MT4 has multiple default indicators already built into the platform. You can view the list of available indicators in the "Navigator" section.
To add an indicator to your chart click on the name of the indicator in the Navigator box and drag it onto the chart. When you add it to the chart a box will pop up that will allow you to specify the settings of the indicator.
To remove an indicator from your chart right click on the chart and select Indicators List. Select the indicator you want to remove and hit delete. Or you can simply right click on the indicator on your chart and hit Delete Indicator.
If you have customised your chart or added multiple indicators to a chart you may wish to save the chart template so that you can quickly add the same format to other charts.
An exmaple of the kind of customisation you can create is shown below. The background colour on a 1 minute EURUSD chart has been changed to blue, and the colour of the prices on the graph to red. In this example a 15 day moving average indicator has been added to the chart:
Margin trading mirrors normal market trading except the trade will not mature and you will never have to exchange any commodities, equities or anything else other than money. Because you are never actually going to have to settle a trade or come up with the full amount of the initial transaction, margin trading has evolved to allow clients to trade in a larger amount than they are holding as collateral or deposit, known as margin. This can vary depending on what you are trading, due to volatility issues, and also on which trading company you trade with. A company that lets you trade with massive leverage is not necessarily doing you any favours as you are potentially exposing yourself to large losses, which can accrue very quickly in a volatile market. Our system will close out your biggest losing positions automatically when your available funds fall to 10% of the required margin to hold those positions until your account us back on side. It is nonetheless always your responsibility to ensure that this has been done and that you are not left with positions you are not aware of or that are costing you more money than you have.
To trade CFD’s you simply have to fund your account with the required initial margin for that product in the amount you wish to trade. For a stock like Vodafone for example, if the margin requirement is 5% then you only have to deposit that percentage of the value of the trade you wish to do. So to buy £50,000 worth of Vodafone shares you would only need to initially fund your account with £2,500 (which is 5% of £50,000). You are trading on the price movement of the market concerned, and when you close the trade the difference between the opening price and the closing price will determine how much money you make or lose. You do not have any entitlement to voting rights, are subject to corporate actions, and are liable to pay the dividend if you are short, but you do benefit from any dividends that are awarded if you are long. CFD’s are not regulated on any exchange because they are a derivative product. This simply means that we derive our CFD prices from the underlying market price which will usually mimic that price in every way. We do not charge any commission to trade CFD’s. The price you see is the price you get.
The other benefits from trading CFD’s, besides being able to trade on margin, is that you are generally not liable to pay stamp duty on shares, as you have not actually bought any. Also you can offset any losses made against your Capital Gains Tax liability in the UK (tax laws can change). If this benefit is significant to you then we recommend that you seek independent financial advice for a more in depth explanation.
All rolling CFD markets are subject to overnight financing. If you are long CFD’s (i.e. you have a position on which you will profit if the market concerned goes up) then as you have only put up a fraction of the actual value of the trade then you have ‘effectively borrowed’ the balance. For this we charge a financing charge of 2% above the overnight borrowing rate for the currency concerned.
If you had gone short on CFD’s (i.e. you have a position on which you will profit if the market concerned goes down) then you have effectively deposited the entire value of the trade with us and will receive financing which is the overnight lending rate minus 2% (subject to a minimum of 0%). This is much better than most of our competitors as some do not have a minimum of 0%. This would be like a bank charging you interest on having savings.
As mentioned previously any profit or loss made on a CFD trade is calculated from the difference between the opening and closing prices of the trade. So if you bought £50,000 worth of Vodafone at £1.40 and sold them at £1.60 then you would make 20 pence profit which is £7,143 (£50,000 / 1.40 x 20p). If the price had fallen to £1.20 then you would have lost this amount. To calculate the number of CFD’s you want to trade you simply divide the price of the CFD into the amount of CFD’s you wish to trade in. So in this example that would be £50,000 / £1.40 = 35,714.
Please make sure that you have read our Risk Warning to make sure you understand the risks involved.
Our products are traded on margin and carry a high degree of risk. Losses can exceed your initial deposit.