Foreign Exchange CFDs

 Forex CFDS

Forex is the largest market in the world with daily volumes of more than 4 trillion USD. Trading Forex currencies became very popular during the past decade. Today there are millions of active Forex Traders worldwide and hundreds of Forex brokers. CFD contracts offer an easy way of trading the Foreign Exchange Market. As in the case of other asset classes, CFDs on Forex imitate the price behavior of the underlying currencies and monitoring your trades is an easy task.

 

Trading CFDs on Forex Vs ECN Forex Trading

(A) CFDs and ECN Forex Similarities

Trading CFDs on Forex is similar in many ways to trading ECN Forex, here are some important similarities:

-CFD trading and Forex trading offer high-leveraged trading

-An initial margin is used for every trade

-You may trade both market’s directions

-The trading orders and the available platforms are similar

-You can practice scalping and hedging (note that some CFD providers may not allow it)

-You can use automated systems and practice back-testing of any Expert Advisor via MT4

-You may keep your positions overnight by paying or be paid a SWAP rate

(B) CFDs and ECN Forex Differences

Here are some key differences between CFDs on Forex and ECN Forex:

-CFD trading involves a wider range of financial instruments and not only currencies

-Guaranteed Stop Losses are available only in CFD trading

-Trade sizes differ across CFDs and Forex Trading (check the following table for more details)

  ECN Forex Forex CFDs
Range of Markets  Forex Pairs  Forex Pairs  Shares, Indices and Commodities 
Trade Size  1 lot 1 CFD contract
Fixed Spreads No Yes 
Available Platforms  MetaTrader4, MetaTrader5,Mobile Traders Web-TraderMetaTrader4, MetaTrader5,Mobile Traders
Risk Management Stop-Loss Orders Stop Loss & Guaranteed Stop Loss
Demo / Practice Account Available Available
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Energy CFDs –Trading Oil and other Energies

 

Trading energy assets via CFDs incurs many advantages. The four main energy assets available via CFDs include Crude Oil, Gasoline, Heating Oil and Natural Gas.

SYMBOL

UNDERLYING ENERGY ASSET

USOil

Crude Oil (WTI)

UKOil

Crude Oil (Brent)

NGAS

Natural Gas

 

Two Crude Oil Classifications

There are two main crude oil classifications:

(1) US Oil

US Oil is referred to WTI (West Texas Intermediate). The WTI is considered light. The light density along with fewer impurities makes WTI a sweet crude oil. WTI typically trades a dollar or two higher to Brent.

(2) UK Oil

UK Oil is referred to Brent Blend oil. The Brent Blend is a sweet crude oil too and which is refined in Northwest Europe. Brent is mainly used in the production of petrol.

 

Advantages when Trading Energy Assets via CFDs

There are many reasons for traders to select trading energy assets using CFD contracts:

(1) High Capital Leverage

Trades are leveraged commonly 50:1 or even more

(2) Low-Cost Trading

The spread of crude oil is very tight while by trading CFDs on Futures you may avoid paying overnight charges

(3) Advanced Trading Platforms

CFD providers offer many different trading platforms including the MT4 which provides multiple orders, advanced charting, trading-on-charts, expert advisors etc.

(4) Minimum Deposit Requirements

You may trade as little as 1 contract. Usually, the initial margin required for 1 contract of Crude Oil is just $75. Therefore you can open a decent position with as low as a couple of hundred bucks

(5) Easy-Monitoring of Prices

CFD contracts imitate the price behavior of their underlying assets. If the price of crude oil is $80 then the price of the Crude Oil CFD is $80 too. Trades can be easily monitored and placing orders become a very easy process too.

(6) Trade any Market Direction

CFD traders can go long or short on energy assets using the same trading account.

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