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  1. #1
    Moderator Kolyo's Avatar

    The Big CFD Thread - Everything You Need To Know About Trading CFDs !!!

    We are starting a new chapter in our CommuniTraders Forum by opening a thread fully dedicated to trading CFDs or contracts for difference. CFDs are relatively new and extremely flexible instruments for trading wide range of Assets. Actually there are CFDs on everything from Stocks, Commodity Futures, Stocks Indexes, ETFs, Bonds and even Cryptocurrencies like Bitcoin!

    Every serious trader should consider them as a flexible alternative to binary options, which we all know very well. I will explain in a second in more details what actually CFDs are, but let's imagine that you can trade anything from the markets around the globe without the need to comply with all the strict regulatory or margin requirement that big stocks exchanges have. Exactly the same way as we trade freely many different instruments with the binary options, but this time not restricted with the time duration and with only binary outcome win or lose. With CFDs you can benefit from the entire move in a bull or bear market, making easily returns of several hundred percentages. Of course if not traded properly CFDs comes with their significant risk associated but you are flexible to setup your own Stop Loss and Take Profit orders, maximizing the potential of the trade and minimizing the risk involved.

    Now What Exactly is CFD or Contract for Difference!
    It is simply a contract with the broker for the difference between where a trade is entered and exited. A CFD is an instrument that mirrors exactly the movements of the underlying asset. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned.

    How a CFD Works
    If a stock has an ask price of $31.45 and 100 shares are bought at this price, the cost of the transaction is $3145. With a traditional broker, using a 50% margin, the trade would require at least a $1572.5 cash outlay from the trader. With a CFD broker, often only a 5% margin is required, so this trade can be entered for a cash outlay of only $157.25.

    What are the Advantages of Trading CFDs
    In adition to the above mentioned advantage that you need less cash in your account to control the position of the same size there are number of other benefits to trade CFDs instead the real underlining asset. For example in USA the Pattern day traders rule do not allow for traders with account balance less than $25000 to have multiple day trades (positions that are held less than 24 hours) and only very limited number of such mpositions per week.With CFDs, which mirror the exact moves of the real asset you can trade as much as you want and with greater leverage than trading stocks. The second big advantage is you don't have to pay numerous commissions sometimes as much as $10 per trade if you would like to purchase few stocks. In CFD trading it is very common to trade with small commissions or even commission free in exchange to little bit wider spread but this is only 1-2 cents per trade per share. much less than the fees for trading the actual stock. Third benefit is that with CFDs you can trade futures with minimum trade size of only one contract, like for example entering position of only 1 SP500 contract while if you want to trade the real futures your minimum trade size is 50 contracts, which is way too big for a small trader. The other advantage of trading CFDs is that you can gain actual interest on your positions, like Stocks Dividents, Bond regular coupon payments, Currency interest rates. You probably don't know but if you just keep (not trade, but only keep) a position in Turkish Lira (TRY simbol) you gain 6.5% return on your investment per year for doing nothng but keeping this position!

    What are the Disadvantages and Risks Associated with Trading CFDs
    First of all CFD trading is one step more advanced than binary options.You have to control not only your position size, but also risk by adjusting stop loss properly and ensure you won't receive a margin call if the trade turns against you. Leverage is at the same time the best friend and the worst enemy of a trader. In Binary Options you don't have leverage, you just risk what you put on the table. Here with CFDs you can control positions sometimes 50 or even 100 times larger than your invested capital. I have to say here it is highly dangerous and I am advising for newbie traders to not use leverage at all! The second risk with trading CFD instruments is that the CFD industry like Binary industry itself is not highly regulated yet. The credibility of the broker is based on reputation, life span and financial position. There are numerous regulated CFD brokers, but also many appealing offers that are from not trustworthy brokers too. There are many fantastic CFD brokers, but it is important, as with any trading decision, to investigate whom to trade with and which broker best fulfills your trading needs.

    With that said I want to open the discussion here! Everyone is invited to join and share their experience with CFD trading, to ask their questions or to discuss their requirements and preferences
    "The goal of a successful trader is to make the best trades. Money is secondary." - Alexander Elder

  2. #2
    Veteran Member Dan21's Avatar
    This is fantastic thread. I am already trading CFDs for few years and they are great addition to my binary trading activities. I prefer trading futures on crude oil and stock indexes through CFD contracts. This is lot easier than trading real futures on US exchanges. Unfortunately I think that CFDs are forbidden for all US based traders and it is big disadvantage for them, but all other traders including EU, Australia even Japanese traders can freely trade them. Selecting best CFD broker is a big subject but I will join the discussion later on to share my experience till now

  3. #3
    poe is offline
    Specialist Member poe's Avatar
    i will enjoy this read..

    Can you guys name some the differences btween trading CFDs and Forex ?
    Last edited by poe; 09-16-2017 at 09:01 PM.
    "He who makes a BEAST of himself, gets rid the pain of being a MAN" S.J

  4. #4
    Legendry Member willyw's Avatar
    CFD have many instruments like indices, energy, metal and even currency. They derived from fututes contract. Forex is the currency spot market
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  5. Thanks poe thanked this post
  6. #5
    Legendry Member milos's Avatar
    Nice topic. I do own some trading experience in this area. I was trading a little...

  7. #6
    Veteran Member Dan21's Avatar
    Quote Originally Posted by poe View Post
    i will enjoy this read..

    Can you guys name some the differences btween trading CFDs and Forex ?
    There is not a big difference between CFD trading and spot forex trading. The difference is small and on first hand there are CFDs on almost every instrument you can imagine while forex is only for currency trading. Also with CFD on stocks there is some small comissions involved while with trading forex you are paying only the spread in many cases very very small.Thats almost all differences, you can use the same strategies and same tactics with both, also there are already many brokers offering simultaneously forex and wide range of CFDs. It is very important before selecting a CFD broker to see what is the range of offered CFDs. Sometimes it is very limited other times it can be hundreds or even thousands. For example IG offer CFDs on almost every known stock in the world about 8000 CFDs, but their conditions are quite expensive for me, I prefer to trade CFDs on stocks with other brokers.

  8. #7
    Administrator Martin Kay's Avatar
    Nicely written straightforward explanation of the difference between Binary Options and CFD
    “Don't believe anything you read on the net. Except this. Well, including this, I suppose.” ― Douglas Adams

  9. #8
    Legendry Member Okane's Avatar
    CFD's are very similar to FX trading so if you have a technique/strategy for trading FX you can try CFD's too!
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  10. #9
    Moderator Kolyo's Avatar
    That's true. Trading CFD is very closely related to Forex. If you know some strategies working with Forex you are ready to setup with CFDs as well. Keep in mind every instruments has its own nature and not as easy adapt systems and strategies when translated from one instrument to another, but the basics are fully the same. Placing Stop Loss. Take Profit and risk control
    "The goal of a successful trader is to make the best trades. Money is secondary." - Alexander Elder

  11. #10
    Legendry Member milos's Avatar
    CFD trading is less risky. You can set up how much you can earn/lost money. It also exists risk management as well as in binary options trading.

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