CFD (Contract for difference) is a type of investment that provides the investor with all the benefits and risks of owning a stock without actually owning it. CFD, as an arrangement made in futures allows the investors to settle using cash payment both for profits and losses. As we well know in ForexSQ, Investor does not need to hold the physical stock and the flexibility that this situation provides makes CFD’s attractive for OTC traders.
The ability to use leverage when trading CFD’s allows it to appeal to a wider audience. Lower margin requirements through leverage, no limit on minimum capital investment, and no limit on number of trades that can be executed creates a more flexible environment compared to traditional stock trading. As mentioned above (risks of owning a stock without actually owning it), CFD’s are directly impacted by corporations’ decisions such as cash dividends or stock splits even though they are not really actually physical stocks. In addition, since there is no real ownership of the asset itself, very few or no borrowing or shorting fees are applied. Like FX markets, brokers might offer fixed and dynamic spreads on CFD’s.
Brokers offer two types of market access for CFD traders. It could be either Market Maker (MM) or Direct Market Access (DMA). MM brokers usually are cheaper (lower spreads) compared to DMA brokers however as the name suggests they offer the bid/ask quotations themselves. It is possible to get a different price than what you see in the actual market. Using an MM broker for lower spreads might actually end up becoming more expensive since the profits might be diminished due to different price that they are allowed to quote.
To diminish the risk factors and allow a healthy environment for CFD trading, one needs to find out how the brokers are being regulated. Just like binary options or FX trading, investing through a trust fund that is regulated and monitored increases the security on customer side. Moreover, having a broker that allows its customers to use EPS (electronic payment systems) makes is easier to track the movements of the trading account and withdraw and invest capital. Again, CFD’s use leverage and high profitability always translates to high risks and before making the decision to invest in CFD’s one needs to thoroughly understand the risk factors involved with it.
Risk Disclosure Analyzing your financial situation, you should decide whether you should start Forex trading or not. Rates of currencies can go down or rise higher any day, any hour, any minute so you should risk only that much which you can afford to loose.
Editors’ Picks
EUR/USD recovers modestly, stays below 1.1900
EUR/USD gains traction and edges higher toward 1.1900 in the second half of the day on Thursday. The US Dollar struggles to benefit from the upbeat employment data following an initial positive reaction, allowing the pair to find a foothold.
GBP/USD holds above 1.3600 after UK data dump
\GBP/USD moves little while holding above 1.3600 in the European session on Thursday, following the release of the UK Q4 preliminary GDP, which showed a 0.1% growth against a 0.2% increase expected. The UK industrial sector activity deteriorated in Decembert, keeping the downward pressure intact on the Pound Sterling.
USD/JPY consolidates around 153.00 favoured by lower Fed easing bets
USD/JPY steadies around 153.00 after hitting two-week lows at 152.25. A strong US Nonfarm Payrolls report provided some support for the US Dollar on Wednesday. The Yen remains on track for a 2.6% weekly rally, boosted by Takaichi's victory at Sunday's elections.
Editors’ Picks
GBP/USD holds above 1.3600 after UK data dump
\GBP/USD moves little while holding above 1.3600 in the European session on Thursday, following the release of the UK Q4 preliminary GDP, which showed a 0.1% growth against a 0.2% increase expected. The UK industrial sector activity deteriorated in Decembert, keeping the downward pressure intact on the Pound Sterling.
EUR/USD recovers modestly, stays below 1.1900
EUR/USD gains traction and edges higher toward 1.1900 in the second half of the day on Thursday. The US Dollar struggles to benefit from the upbeat employment data following an initial positive reaction, allowing the pair to find a foothold.
Gold sticks to modest intraday losses as reduced March Fed rate cut bets underpin USD
Gold languishes near the lower end of its daily range heading into the European session on Thursday. The precious metal, however, lacks follow-through selling amid mixed cues and currently trades above the $5,050 level, well within striking distance of a nearly two-week low touched the previous day.
LayerZero Price Forecast: ZRO steadies as markets digest Zero blockchain announcement
LayerZero (ZRO) trades above $2.00 at press time on Thursday, holding steady after a 17% rebound the previous day, which aligned with the public announcement of the Zero blockchain and Cathie Wood joining the advisory board.
A tale of two labour markets: Headline strength masks underlying weakness
Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.
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