What is CFD Trading?

       

        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.

                                                                                     

How to spend thousand dollars?

          Nickolas worked as a journalist for already ten years. He was earning enough to make a modest living without any luxury. He was married once, but his wife couldn’t stand his personality of not trying to reach high goals, so he lived alone and comfortable with no reason to complain about life. His all days were similar to each other, except one, when he bought a lottery and appeared to be lucky. He won thousand dollars. Once in a lifetime Nick wanted to try something new, something he hadn’t done before, so what to do? –I always liked traveling and wanted to see new places, but everytime something was keeping me away from doing it,- he thought,- hmm I haven’t taken a holiday for a long time already, it’s right time to do it. Next day at 10 o’clock in the morning he was waiting outside of the principle’s office. –Come in,- he heard someone calling from the room.

-So you want to take a holiday to do what Nick?, - asked the principle. –Travel, Mr. Armstrong, I always wanted to visit Greece as my ancestors are from there,- answered Nick. –Oh, I see, but there is a little problem with your decision. –Problem, what kind of problem, sir? –It’s not a surprise that you haven’t written any good articles for a long time already. Maybe you have some problems I understand, but now you want to take a holiday for a month and I think it’s too much. I cannot let you do that until you give me some good material.

Nick was upset, as his desire was not fulfilled. The fact was that he really wanted to spend that money now, so what to do? He was considering leaving his job and doing what he initially decided, in the end he wanted to do that for a long time now, but it wasn’t a sensible idea and he was a sensible man. There had to be something else he could do with the money. Several ideas crossed his mind at that time. Buying a video camera sounded nice to him at the beginning, but then he remembered that he is divorced and doesn’t have children, he cannot even go traveling then why does he need a camera? He could also donate the money to the charity, it would be very kind of him, but despite of this wonderful idea he really wanted to spend the money for himself. His head full of this kind of thoughts he didn’t even notice that he was already sitting in a café and one of his old friends was trying to catch his attention. They had been very close friends once when he and Michele were still married, but after the divorce many of their mutual friends chose to support Michele and Harry was one of them. They talked about old times, remembered good days and Nick told him about his lottery prize and that he cannot decide what to do with that. It appeared that Harry was trading on foreign exchange (forex) market for several months and already earned some money. – It is certainly a risky business, but in case of having a good strategy, you can earn quite a lot and that is what I do. You should try, it will be a new and interesting way to invest money-he said. 

                It was late at night Nick couldn’t fall asleep. He was thinking about life, about the money and Harry’s words. It was a risky business he said, but Nick was never a man who was getting engaged in risky businesses. It could be the reason he was alone now. He never enjoyed dangerous trips, was always careful and sometimes boring as his friends used to say. Maybe it was time to try something risky, he wouldn’t lose anything. That night he followed his old friend’s advice and started trading. He lost money and won money, he was thinking about new strategies he could use to earn money, besides he made some new connections during that. The change made in his life had a good influence on him and also on his career, because he became more enthusiastic and interested in what he was doing. He found good material that he could use in articles, which in fact Mr. Armstrong appreciated and approved his desire to travel.

                Now he had money and had permission from boss, he could finally do what he really wanted for a long time and it felt wonderful. New life was waiting for him full of new and exciting experiences. 

Gaurav Learns about Bid and Ask Prices

Gaurav Learns about Bid and Ask Prices

The next meeting with my friend Gaurav took place in my office. When Gaurav entered my room, I was sitting in front of the computer, staring at the screen. You can guess that at that moment I was trading Forex and was in a panic cause my loss was gradually increasing. However, I was ready to continue familiarizing my friend with the Forex world.

-          Hi, my friend, this time I will tell you about Bid and Ask prices in Forex.

He looked at me amazed, trying to understand the meaning of the terms.

-          I will now explain everything to you, it is really simple. Look, the price at which you are ready to sell the currency is called Bid price and the price at which you buy the currency is Ask price.

-          Yes, I have grasped the main idea, Manoj, but could you bring an example just for clarity?

-          Yes, of course. Look, you open the terminal and see that the broker offers you the currency pair EURUSD with the Bid price of 1.30435 and the Ask price of 1.30404. So when you buy the base currency which in this case is the EUR you look at the price 1.30404 and when you sell, you look at the Bid price, i.e. 1.30435. So, always remember:

- YOU BUY AT ASK PRICE

 - YOU SELL AT BID PRICE

-          Everything is clear, but there is something that interests me. Why is there a difference between Bid and Ask prices?

-            Yes, I was just going to tell you about Spread. That difference is called Spread which is the profit of the broker. Every broker charges the spread which may be different for each currency pair; moreover it may be different for the same currency pair, depending on the market volatility. Hence, there are fixed and floating spreads. For example, IFC Markets offers low and fixed spreads, starting from 1.8 pips. As for pip, I will tell you about it the next time.

-          Ok, thank you very much for new information, my dear friend.

Rupee, who are you !?

The History of the Rupee

The official currency of the Indian Republic is called the rupee (INR) and the coins are called the paise. One Indian rupee is made up of 100 paise. Paper money comes in allotments of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. Coins come in allotments of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees and five rupees. 

So how old is the Indian rupee? The Indian rupee history goes back to the 15^th century when Sher Shah Suri (1486–1545), the founder of the Sur Empire in North India, introduced the first rupee. The word “rupee” derived from Sanskrit rūpya "shaped; stamped, impressed; coin" and also from the Sanskrit word "rupa" meaning silver.

The United Kingdom, whose colony was India, was trying by force to put into circulation the pound; however these attempts were not a success. In that period the rupee was spread in other colonies of the UK: Kenya, Qatar, Uganda, Bahrain, etc.. After the recognition of independence of India in 1947, the rupee became the official currency of the Indian republic.

On the front side of the banknote features a portrait of Mahatma Gandhi.

The Indian rupee has its special symbol. It is a blend of ‘Ra’ in Devanagri script and ‘R’ in Roman. It has two parallel lines crossing this ‘Ra’ or ‘R’ which shows that the symbol “is equal to” one Indian rupee. If you look more closely at the symbol, you can notice the robustness of the Indian economy.

Rupee in Forex Currently the Indian rupee is widely traded in Indian Forex market. The rate of the currency pair INR / USD is controlled and managed by the Reserve Bank of India, while other pairs INR / EUR and INR / JPY are volatile and are in a free-floating. At present IFC Markets does not provide INR as a trading instrument. But in the nearest future INR will be included in the list of currencies traded in IFC Markets.

Gaurav Learns About Currency Pairs and Exchange Rates

The next time when we met I felt that Gaurav was impatient to know more about Forex trading.

-          I am really eager to go deep into Forex, so what am I supposed to learn today?

-          Today I will give you general information about currencies. So let’s start from the beginning. As you know in commodity market a product is sold or bought with this or that currency. And how does it operate in Forex market if the currency itself is the product? The answer is simple. In this market currencies are exchanged for one another.

-          You mean that I can trade with any currency in Forex?

-          Yes, you are right. The currencies are so many in number that The International Committee of Standardization has established a special ISO code for each currency, consisting of three latin letters – the first two letters indicate the country of the currency and the last one the name of that currency. For example INR is the abbreviation of India and Rupee.

-          Oh, great, so USD is United States and dollar, GBP – Great Britain and Pound, JPY – Japan and Yen.

-          Yes you are completely right, my friend. But you see not all currencies are important in Forex market. There are such which are traded more than others. Being the World’s Reserve currency USD is traded mostly. Accordingly currency pairs including US dollar are called major currency pairs. They are the following ones:

EURUSD – Euro vs US dollar

GBPUSD – British pound vs US Dollar

USDJPY – US Dollar vs Japanese yen

USDCHF – US Dollar vs Swiss franc

AUDUSD – Australian dollar vs US dollar

USDCAD – US dollar vs Canadian dollar

NZDUSD – New Zealandian dollar vs US dollar

-          And are there currency pairs which do not include USD?

-          Yes, and such pairs are called major currency cross pairs. For example AUDCAD, GBPAUD, EURCAD, etc.

-          But I don’t understand one thing, Manoj. Why in one pair for example USD stands first, in another second?

-          So, see, if the price of one currency is expressed in US dollars such quotation is called direct quotation.

-          So, GBPUSD, EURUSD are direct quotations, right?

-          Yes, it is right. And if the price of USD is expressed in a currency, such quotation we call indirect quotation, e.g. USDCHF, USDJPY. As you see currencies are traded in pairs which are called currency pairs. The first currency in the pair is base currency and the second one is quoted currency.

-          So, in EURUSD EUR is base currency and USD is quoted currency, am I right?

-          Completely right. Let’s continue, each currency pair has its exchange rate and we call it quotation. Quotation is the price of one currency expressed in the price of another currency. For example when you see the following quotation EURUSD 1.3104 what do you understand from it?

-          I guess that for 1EUR you can give 1.3104 US dollars.

-          Great, Gaurav, you have understood everything.

-          Now, let’s conclude. In Forex market we trade with currency pairs. Each currency pair has its exchange rate or quotation. The first currency in the pair is called base currency, the second one quoted currency. We can assume for better understanding that the base currency is your product and the quoted currency your money. In Forex market there exist many currency pairs. Those which include US dollar are major currency pairs, and those where USD is absent are called major currency cross pairs.

-          Thank you, my friend. You really gave me valuable information. Now I suppose that it is time for me to enter Forex India.

-          No, these are only the first steps, Gaurav. You still have much to study. Be patient and you will enjoy Forex trading soon.

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Hello, dear Indians. The festival of Holi is celebrated in India the day after the full moon in March every year. In 2013, Holi was celebrated on Wednesday, March 27. The festival symbolizes the end of winter and the beginning of spring, the season of harvest, colours and joy. On that day the atmosphere in India was wonderful. All the country was like a great rainbow, you could see every colour in all corners of India. Happy Holi to you, dear Indians. May this spring be fruitful and productive for you and may it bring new colours into your life.