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CFD.

What are CFDs?

CFD is an abbreviation for Contract For Difference. This form of financial instrument enables you to trade an underlying index, share, or commodity contract without owning it. The underlying asset’s price is used to calculate the CFD price. As a result, if the price of the underlying asset, such as gold or Facebook stock, rises, so will the price of the CFD. Similarly, if the underlying asset’s price falls, so will the price of the CFD. It is critical to underline that you do not own the asset you trade.

What is CFD Trading?

Trading CFDs is quite similar to trading forex. If you believe the price of a certain instrument, such as crude oil, will rise, you should BUY the crude oil CFD. The opposite is true: if you believe the value will fall, you short sell the CFD. Naturally, as with any form of trade or investment, incorrect forecasts can result in a loss of money, and before beginning, one should be aware of the dangers associated with CFD trading. There is a lot more to learn about CFD trading, and you may do so by searching the internet, watching video lessons, reading articles, getting news updates, and so on. More information about CFDs, including their benefits and drawbacks, may be found here.

How Much Will it Cost to Trade CFDs?

Finladder does not charge any exchange fees or commission and offers tight spreads on open positions. The spread is the difference between the BUY and SELL prices of a certain instrument. When calculating the cost for a position, you need to multiply the spread by the size of the position. For example, if the spread for crude oil trading is $0.03 USD, the cost for opening a 10 barrel-position is $0.03 X 10 barrels = $0.3 USD. Most of the CFD instruments are traded on market spreads, which means that the spreads are affected by the liquidity of the market. The more liquidity, the narrower the spread will get. You can review the levels of leverage and spreads for all CFD instruments on our Trading Conditions & Charges page.

CFD Contract Rollover

Each index and commodity CFD is based on a contract that specifies the rates, charges, and so on. Each of these individual CFD contracts has an expiry date, which is the day on which the contract expires and is replaced by a new contract, just like in the actual market. The contract rollover occurs over the weekend to avoid disrupting traders during market hours. 

Hedging with CFDs

Hedging is a risk management strategy that involves opening opposite or offsetting trades designed to practically mute the risk exposure of an open trade in the market. CFDs represent an ideal type of derivative to implement a hedging strategy effectively. To start with, they are low-cost and liquid. But they can also be customised (in terms of size and amount) to meet the specific hedging objectives any investor desires.
As an example, if you hold $10,000 worth of shares of Tesla in your portfolio, you could hedge the position by selling an equivalent or part amount of Tesla stock CFDs. In that way, if Tesla prices fall, the loss in value in your physical shares portfolio will be offset or cancelled by the profits gained by the CFD trade. You can then close out the CFD trade when the downward retracement comes to an end so as to lock in your profits and to give the value of your physical Tesla shares the chance to rise again.
CFD hedges are ideal when a market is moving against you (either due to sentiment or overall fundamental reasons) or when the market has moved so much in your favor that any extra gains are likely to be fractional. On the other hand, CFD hedges can be particularly riskier because of leverage; they are therefore not ideal when the underlying market is very volatile or when a retracement has been overextended.

Disadvantages of CFDs

Ironically, leverage is one of the biggest disadvantages of CFDs, just as much as it is one of its major appeals. Leverage boosts your profit potential, but when prices go against you, it can leave a devastating puncture in your trading capital. This is because losses are based on the leverage amount and not on your actual trading capital. CFD trading also comes with associated costs. When you open a CFD trade, you have to pay a spread fee which is the difference between the bid and ask prices of an asset. There are also additional costs in the form of rollover fees or swaps for positions held overnight. This is the cost applied for holding a leveraged position (which is essentially borrowed money) for an extended period of time.

Market volatility is another source of risk in CFD trading. Prices of financial assets are prone to random fluctuations and sometimes even choppy price action. There can also be price gaps that can occur during high-impact news releases or market openings after the weekends. This volatility can mean that you may miss your desired prices when entering trade positions, or your losses can be amplified when prices go against you. A final drawback for CFDs is that you do not own the underlying asset you are trading; you are simply speculating on its price changes. If you are trading a stock CFD, it means that you have no real shares, you do not hold any voting rights, and are not entitled to any dividends.

Why trade CFD on Infinity Orbit Invest?

When trading forex, or any other instrument, you must be able to trade with confidence. At Infinity Orbit Invest, we give our traders with the greatest trading tools to anticipate the market before starting a trade position for our investors to copy, and we are committed to a set of values that define our relationship with our Investors. As a result, we offer the greatest trading experience imaginable, including bilingual customer support, the most advanced and user-friendly trading platforms, and a unique risk-limiting tool.