What is a CFD and CFD trading?
The CFD (“Contract for Difference”) is a popular form of derivative trading. A client does not take physical ownership of the underlying asset, but CFD trading enables him/her to speculate on the rising or falling prices of financial instruments such as shares, indices, commodities and currency pairs.
With CFD trading, the client does not buy or sell the underlying asset (e.g. a physical share). The client buys or sells a number of units for a particular financial instrument depending on whether the client thinks prices will move up or down.
The Company offers CFDs on a wide range of global markets and our CFD financial instruments include:
- currency pairs,
- commodities and
- stock indices such as the S&P 500, DAX, UK 100 etc.
For every point the price of the financial instrument moves in client’s direction, the client gains multiples of the number of CFD units bought or sold. However, for every point the price moves against the client’s direction, the client will make a loss.
To buy the equivalent of 1,000 IT company share CFDs with the Company, the client may only need to deposit 10% of the total position value in comparison to depositing the whole amount of the position value if he/she was buying physical shares from a stock broker.
If each share costs 5 USD then you will only need to deposit 500 USD to cover the margin requirement for such position(10% of USD 5,000 = USD 500) plus the applicable commission, which in this instance would be USD 20.
What risks are associated with CFDs trading?
As with all financial trading instruments, there are risks a client must consider before trading CFDs.
The high degree of leverage associated with these types of investments means that the degree of risk compared to other financial products is higher. Trading with leverage may work against you resulting in substantial loss as well as for you resulting in substantial gain. Even when market conditions are relatively calm, leverage can create large gains or losses very quickly. This may cause your broker to take action to avoid a negative account balance. In either case, the Company may close any or all open positions in the account to remedy the situation.
Since the transactional cost of trading CFDs is tied to the bid-ask spread, it is important to understand what the normal bid-ask spread is for any pair, and what that spread means in the actual cost per trade. The bid-ask spread can also fluctuate throughout the trading day and is often a function of the liquidity of the position you trade. You may also see slightly wider bid-ask spreads in quiet market situations, especially on lightly traded forex pairs or during high volatility on the markets. As in any trading market, CFDs are driven by short- and long-term supply and demand, which can cause prices to move rapidly and often erratically. Traders need to employ sound risk-management techniques on each and every trade. Using stop-loss orders can help to limit the maximum loss the client will have in any given position. However, it should be noted that in some circumstances even the use of stop-loss orders cannot prevent the client from incurring a bigger loss.
- Understanding the currency pair when trading Forex
Forex trading is based on currency pairs. When trading forex one speculates whether the price of one currency will rise or fall against the other currency.
The currency pair indicates how many of the counter currency is needed to buy the base currency.
If the EUR/USD trades at 1.08 it means that one euro costs 1.08 US dollars, i.e. 1.08 US dollars is needed to buy one euro.
- Trading (long/short positions)
The client may open a long or short position based on his/her individual market expectation.
- a) Long position
If the client expects that an underlying asset’s price is going to rise, the client might open a buy position (also known as “going long”). By a long position the client opens a trade which speculates on the rising price of financial instrument.
Forex trading: If the client thinks that EURO is likely to strengthen against the US dollar, he/she may decide to buy the EUR/USD pair (please always bear in mind that by trading CFDs the client is not buying/selling the actual currency).
- b) Short position
If the client expects that an underlying asset’s price is going to fall, the client might open a sell position (also known as “going short”). By a short position the client opens a trade which speculates on the falling price of financial instrument.
Forex trading: If the client thinks that EURO is likely to fall against the US dollar, he/she may decide to sell the EUR/USD pair (please always bear in mind that by trading CFDs the client is not buying/selling the actual currency)
- What is Leverage?
Leverage is the ratio between the transaction size and the margin requirement/initial margin that is required to open a position. Trading using leverage means you can magnify the returns on your investment but it is important to remember that losses will be magnified as well and it is possible to lose all your initial invested capital.
If the client deposited USD 1000 and assuming his/her leverage level is 1:50 than the highest amount that the client can trade with is USD 50.000. 1:50 ratio means that in order to open a position, the initial margin is fifty (50) times less than the transactions size.
Trading with leverage carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you.
- What is margin/margin requirement?
Margin/margin requirement is the amount of funds required in client’s trading account in order to open and maintain an open trade. The funds used as margin to open and maintain a trade are effectively frozen while client’s position is open, and returned to client once the trade has been closed (taking into consideration that the trade will not cause a bigger loss than the margin required).
Does CFD WORLD charge for account management?
Account management is not charged in CFD WORLD
I have received a Margin call e-mail, what does that mean?
By Margin call we inform you that the value of coverage of your positions has dropped to a level which requires your attention. You should check your open positions, check what is happening on the market and consider the risk. In the event of a Margin call, we recommend performing one of the following: a) insert additional funds to your trading account as soon as possible b) close some or all of your positions.
I cannot login to my CFD WOLRD, what should I do?
In case you forgot your password, go to the myCFD WORLD login page, click on the ‘Forgotten your password?’ link and follow the instructions.
In case you do not know your registered email address, please contact our support team by phone: +357 25 054744 or e-mail: firstname.lastname@example.org. All contact details can be found here.
I cannot log into the platform, what should I do?
You may change the password for your chosen trading account in any of our platforms directly through myCFD WORLD:
- Please log in to myCFD WORLD
- Find Profile – Change password MT4/xStation
- Choose the account that you wish to change the password of
- Link to change the password will be sent to your email address
- Please click on the link and you will receive another email with the new password
- In case you are not able to login to your myCFD WORLD x account to change the password there, please contact our support team by phone: +357 2503 0576 or e-mail: email@example.com. All contact details can be found here
Which activities can be performed by the license acquired by Goldenburg Group Limited?
CFD WORLD is a registered brand name of Goldenburg Group Limited, a Cyprus Investment Firm (CIF) supervised and regulated by the Cyprus Securities and Exchange Commission (CySEC) with CIF License 242/14 for following services:
Main investment services:
- Reception and transmission of orders in relation to one or more financial instruments,
- Execution of Orders on Behalf of Clients
- Investment Advice
- Safekeeping and administration of financial instruments, including custodianship and related services,
- Foreign exchange services where these are connected to the provision of investment services,
- Investment research and financial analysis or other forms.
For further information, please follow through the list of services and instruments here.
Where can I find information about spreads?
All spreads can be found in the webpage under ‘Trading’ > ‘Instruments’ by choosing the proper instrument group or go directly here where you can choose the proper instrument group i.e. Forex, Commodities, Shares and Indices.