5.2 CFDs

Instruments and Platforms

Let us look at Contract for Differences (CFDs).

  1. Futures Contracts (FCs) – A contract for difference is basically the difference made in a futures contract. When an arrangement is made, the differential price between the buy and the selling (differential profit/loss) is paid to you in cash rather than the delivery of the physical goods.

  2. Do not own the CFDs – Another thing to remember about the CFDs is that you are not owning the underlying security. You are buying the security under a leverage of 1:10. Some other brokers might give you a smaller leverage. For the leverage, all do remember (especially for beginner traders) that leverage can be good and bad. The most important thing to note is to understand the risk implications of that Therefore, risk management is so critical and we will talk about in the later modules.

  3. Short the market – We can use CFDs to short the market. You can make money when the market is going down. However, when you are buying a stock or a share, you cannot do that.

Let us now go life into the market and see the CFDs trade.

Traders, here is the life example of the contract for differences for the Dow Jones market as you can see over here. The platform that is shown here is SAXO trader Go. How do you find the different CFDs? For different broker platforms, it will be different. For this platform shown, go under the Watchlist and look at the segregated watchlist for the different types of CFDs. For example, if you choose the CFDs by region, you could choose the CFDs based on the regions that you are residing in. By selecting CFDs for UK, you will be shown a list of CFD instruments. If we choose CFD indices, we can see the Dow Jones and Wall street CFDs as well.

Coming back to the Dow Jones, if I want to select an order ticket, I will do a right click on the screen for a new trade and I can put my specific order details in it. We place life trades in the Live trading evening sessions, which you can look into as well.

However, for a different platform like MetaTrader platform, if you want to select the CFDs, you have to select the market watch to view all the different markets – stocks, currencies, equities and indices. If you specifically want CFDs, right click on the symbols, choose the CFDs, and the specific market you want to trade under. For example, if I choose Airbus Group, I will see the charts appearing in the screen. To place a trade, just place a new order and key in the order details to execute a trade.

So, that is how you find a CFD on different platforms. What was shown was 2 different ways. Go ahead and find it on your own broker platform and familiarise yourself on how to use the instrument on any particular market.

4. Several Brokers – They are out there to trade different asset classes

5. Specialisation:

a. Spreads – The difference between the buy and the sell price
b. Filling Prices – Entry prices

6. Filling Prices – Entry prices

We are going to look closer into the instruments that various brokers offer in the next sub modules.

Subscribe today to join our live trading room and watch us trade in real time with our team of professional traders of over 38 years of cumulative experience.