CFD Trading Example: Going Long – Making a Profit
In this CFD trading example we will be going long and making a profit. Going long means you buy a CFD to open your position with the view of making a profit from the increase in price of the underlying security. You realise the profit by selling at a higher price than the price at which you bought your CFD.
Important: CFD Trading Risk
Before you start trading CFDs, it is important to carefully consider the risks in dealing with CFDs as an avenue to gain exposure to market fluctuations. CFDs are a risky financial product and it is very important that you are aware of the speculative nature of CFDs. A CFD is a highly leveraged financial product and hence carries a greater risk compared to non-geared trading vehicles such as share trading.
How Much Margin Do I Need in My CFD Trading Account?
When trading CFDs, your CFD broker requires you to have a certain amount of cash equity in your CFD trading account. When you open a CFD position, your trading account must have enough cash to fund their margin requirements. Your CFD provider’s margin requirements are typically listed on their website or in their Product Disclosure Statement.
What is a Forex CFD Rollover Charge?
If you hold a forex spot CFD position “overnight” you may pay a Rollover charge or be paid a rollover benefit by your CFD provider. It is important to know at what time this “overnight” rollover charge occurs for your timezone.
What is a Financing Charge in CFD Trading?
If you hold a CFD position overnight you may be liable for a financing charge or benefit. If you are long on a Share, Index or Sector CFD overnight you may pay a financing charge to your CFD broker, while if you hold a short position you may receive a financing benefit from your CFD provider.
Can my CFD Broker Adjust the Price of my CFD?
Yes, your CFD provider can adjust the price of the CFD you are currently holding. These Contracts For Difference adjustments in price is applied by your CFD provider can be applied for Share CFDs, Index CFDs and Sector CFDs. These adjustments typically occur as a result of a company dividend and certain corporate actions (for example, bonus rights issues, rights issues and stock splits)
What is a Currency Index CFD?
Compared to the specificity of trading with spot forex, trading currency index CFDs allows the trader to take a general view. This is because the underlying reference is actually a weighted basket of currencies. The weightings are chosen and determined by your CFD broker.
What is a Spot Forex CFD?
When you trade a Spot Forex, you, as a trader, take a position on the foreign exchange rate of one currency against another (For example, USD/JPY, EUR/USD or AUD/USD). Therefore, when trading with a spot forex CFD you are trading the CFD which has a currency exchange rate as the Underlying Reference Security.
How do you Close a CFD trade?
A trader can close their CFD trade by executing an equal and opposite transaction using the same CFD. Also remember to close your contingent orders and other stop loss order you may have set related to your trade as they remain at risk of execution.
What can I Trade using CFDs? Here are types of CFDs
CFD brokers can provide many trading opportunities for the trader. There are many types of CFDs offered which can allow you to be exposed to any profit potential to many worldwide markets all over the world. You can trade stocks listed on the NYSE, or if you want a European flavour you could go trade something on the FTSE or DAX. Or if you are feeling for something Asian you can go trade the Nikkei.