Foreign Exchange 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|
|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|
-Forex Rebates, find out more:
-Welcome Bonus, find out more:
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.
UNDERLYING ENERGY ASSET
Crude Oil (WTI)
Crude Oil (Brent)
Two Crude Oil Classifications
There are two main crude oil classifications:
(1) US Oil
US Oil is referred to as 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 as 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.
Trading Share CFDs
Trading shares is a very popular practice for more than a century. Share CFDs are financial instruments that mirror the price of a particular share by offering great advantages such as high capital leverage, advanced platforms, multiple orders, tax exemptions, etc.
Trade any Market and Any Market Direction
CFD providers offer shares from all around the world:
Share CFDs offer trading in both market directions (profit from both bull and bear markets).
Share CFDs Explained with a Simple Example
CFD contracts or "Contract for Difference" can be used for trading popular shares. CFDs offer many advantages to their holders without imposing them high deposit requirements. Let’s suppose that a CFD trader wants to invest in the Apple stock (AAPL) before the release of the new iPhone. This trader wants to buy 1,000 shares of AAPL worth $100,000. The Apple share is trading at $100. He has two options in order to trade the Apple stock:
(1) He can buy 1,000 shares of Apple directly from his stock-broker. In this case, he will have to deposit at least $50,000 as his stock-broker which offers him maximum leverage 2:1.
(2) He can buy CFD on Apple Share. In this case, he will use leverage 50:1 and he will have to deposit $2,000 as margin to his CFD provider.
Comparing the two options
(i) The difference in the margin requirement is great. Many traders do not have $50,000 free for trading but most traders can afford to deposit $2,000
(ii) The difference in commissions paid is great too. Trading CFDs is considerably cheaper than trading physical stocks
(iii) CFD position offer tax exemptions
Trading Precious Metals and Gold CFDs
There are two main categories of metals, industrial metals, and precious metals. A key difference between these two categories of metals is that precious metals do not react with oxygen while industrial metals do react with oxygen.
The three major precious metals include gold, silver, and platinum. CFD brokers trade these three precious metals and some of them offer also palladium. The main industrial metals include copper, aluminum, zinc, and lead. CFD brokers usually offer only copper.
Industrial Metals versus Precious Metals
The price of industrial metals reflects the overall state of our world’s economy. The stronger the economy is the higher the investment for building new houses and infrastructure. The higher the expenditure for housing and infrastructure the higher gets the demand for industrial metals, so gets the price. But as concerns precious metals this is not always the deal. Precious metals tend to trade within longer cycles that usually last a decade. The precious metals are used mostly as investment assets (35%) and as raw material for jewelry (45%). Normally they should reflect on the condition of our world’s economy. But on the contrary, the price of precious metals tends to peak during a financial or political crisis, wars, etc. Gold is seen by investors as a ‘safe heaven’ during an economic crisis.
Industrial Metals and Major Exchanges Warehouse Suppliers
Traders of industrial metals may use a simple technique in order to evaluate the real supply and the demand for a particular industrial metal. The two major metal-exchanges (COMEX/CME and LSE) offer information about the warehouse supplies.
Therefore by examining the available stock:
(i) If the stock levels higher then the demand is lower or the production is higher
(ii) If the stock levels lower then the demand is higher or the production is lower
The Importance of Gold
Gold is by far the most important precious metal for both trading and investment purposes. In the globe, there are 156 thousand tons of Gold available today while only 2.5 thousand tons are mined yearly. Gold has been the dominant currency for exchanging goods and services since the beginning of civilization.
J.P. Morgan said in 1912: "Gold is money, everything else is credit"