Forex articles – What is a CFD?.
Forex articles. A CFDs (contract for difference) is an agreement to exchange the difference in value of an asset at the time of the opening of the contract and until the contract is closed.
With a CFD, you are not owner of the asset or instrument that has operated, but can benefit from the fluctuation of its price if the market moves in your favor. This is because a CFD is a derivative product whose value is based on an underlying asset.
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How does the trading of CFDs works?.
With the operations of CFDs, you can both get benefits if a market rises as if it falls.
If you believe that the price of an asset will go up, open a buy position (purchases or bullish positions are called ‘long’ positions). If you believe that the price of an asset will go down, opens a position of sale (‘short’ position). The direction in which to move the market, and how much progress will determine whether you get benefits or losses, as well as the amount of them.
If you think that a particular market will go up and buy a CFD on it, your earnings will be higher as the market price rises most, and their losses will be higher the greater the fall in their prices. The same rule applies if your position is bearish because you believe that the market will fall: his position will earn more much mas fall market, and will lose more the more lift the market.
For example, operate with a CFD on shares is similar, in many respects, operating with traditional values, but with added as leverage or the possibility of bearish operating advantages. CFDs also allow you to operate on stock indexes that are not available to operate directly.
Purchase and sale price price
For example, let’s say that at present the company HSBC Holdings quotes 593,2/593, 3.
593,2 is the bid price, at which you can sell.
593,3 is the price offer, that you can buy.
Calculating profit and loss
The number of shares or contracts to operate depends on you, if and when it reaches the minimum required for each market in particular. Keep in mind that the value of a contract varies for different markets.
Suppose, for example, that a FTSE 100 contract is worth Â£ 10 by point of movement in the underlying index. If you purchase a contract on the FTSE 100 and the rate increases to a point, that represents a gain of Â£ 10 for you.
Similarly, suppose that a full contract of EUR/USD is worth $ 10 per point of movement in that currency cross. If you sell EUR/USD contract, and the price increases 1 point, that represents a loss of $ 10 for you.
The majority of operations with CFDs do not expire naturally. If you decide to liquidate a position, simply a transaction of equal value in the opposite direction.
Suppose, for example, that you purchase 100 CFD on shares of BP. Unfortunately the price begins to fall and you decide to liquidate the position before losing too. To do this, you just have to sell 100 CFDs on shares of BP, materializing the losses.
However, there are some exceptions. For example, we offer future contracts on commodities (commodities) that are due on a date specified in the future.
You can also renew the contract at the time of maturity by paying a small renewal fee. There is no other cost apart from this rate, since the cost is included in the spread.