A little history
CFD trading is one of the
newest financial instruments. It was originally developed in the early 1900s in
London by a derivative brokerage firm called Smith New Court, which was later
bought out by Merrill Lynch. Initially it was used for hedging funds to short
sell in the London Stock Exchange. Gradually CFD became more and more popular,
especially when traders realized that a real benefit from it is that you can
use high leverage for larger bets. The first company that made CFD trading
available for an individual was GNI, by creating an online trading system
called GNI Touch. Due to it, private investors and small investment companies
got the opportunity to trade on the London Stock Exchange without having a direct
access to it. GNI was followed by IG
Markets and CMC Markets. It is now considered that over 25% of Britain's stock
market turnover is related to CFD.
The concept of CFD trading
CFD or Contract for Difference is a
contract between two parties, called “the buyer” and “the seller”. Its price is based on underlying asset, for
example a stock index, a single stock or commodity. In other words one side of the
contract is the investor and the other one the CFD provider or broker. By
opening a live account with the broker the investor can speculate on up or down
movement of the underlying asset. He will be able to gain profit by both going
long or short. And this is due to that CFDs are derivative products, which
allow the investor to trade on live market price movements, without actually
owning the underlying asset.
Equity, Index and Commodity CFDs are now available in
new generation trading platform NetTradeX for IFC Markets traders. The
principle of CFD trading is very simple. The trader can buy a certain number of
CFDs expecting the underlying asset to rise or sell a certain number of CFDs
expecting the underlying asset price to drop. Later on when you close the buy
position it means you sell the underlying asset, and vice versa, when you close
the sell position it means you buy the asset. The difference between opening
and closing prices makes your profit or loss.
CFD trading is based on margin trading. What does it
mean? It means that you can open a position having deposited very small amount.
How is it possible? It is possible due to leverage, provided by IFC Markets. IFC
Markets offers its clients quite high leverage which differs depending on the
account type and trading instrument.
Those who choose IFC Markets for CFD trading will get
an access to Index CFDs, Equity CFDs and Commodity CFDs.
The company provides 80 Equity CFDs, including stocks
of Facebook, Apple Inc, Amazon.com Inc, Xerox, Yahoo and many other highly
liquid US stocks. The leverage for Equity CFDs is 1:40. Commission of 0.1% is
charged only for position opening. For position closing there are no fees. One
more important thing is that Equity CFDs are Swap free in IFC Markets. As for
dividend adjustment it is amount equal to the announced dividend which is credited
to or deducted from the client's amount depending on the position direction. In
case of holding long position at the moment of session opening dividend
adjustment will be credited to the trader's account, in case of short position,
it will be deducted from his account. Note that IFC Markets
pays 100% of dividends.
Index CFDs allow speculating on changes in dynamics of
stock and currency indices. Such popular indices as DJI, SnP500, DAX, DJI,
Nd100, CAC40, FTSE100 and NIKKEI are calculated uninterruptedly without an
expiration date.
Commodity CFDs allow investing in dynamics of
commodity prices. IFC Markets provides Light Sweet Crude Oil and in case
trading with IFC Markets you will get an opportunity to gain profit by
investing in dynamics of oil barrel price. This
instrument is calculated uninterrupdetly, as well.
As a conclusion I would like to say that I myself have
recently started investing in CFDs and have noticed some advantages over
traditional share market.
- CFD trading is based on margin trading, giving you an opportunity to maximize your profits
- You have a real opportunity to make profit both going long and short
- No Stamp duty should be paid, unlike traditional share market
- You are able to manage your CFD positions by using Stop Loss and Take Profit orders.
