CFD-Tutorial-Learn-CFD-Trading.pdf

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Introduction

Chapter 1:HE BASICS YOU SHOULD KNOW ABOU CFD RADING

Chapter 2:CHOOSE YOUR CFD PROVIDER

Chapter 3:RADING IN ACION

Chapter 4:CONSIDER AND MANAGE YOUR RISKS
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Nowadays, we live in a constantly changing and developing world. Te presentlie is so dynamic that todays innovation becomes yesterdays history. Under suchconditions every modern person searches or new solutions and technologies.Te emergence o Internet connection has expanded humans opportunities incareer development. Almost all spheres o lie have already been transerred tothe Internet world. Do you want to get a medical consultation? You can get iteasily just sitting at home in ront o your computer. Do you want to watch films?

You can do it without going to any cinema. Do you want to buy something romabroad? No need to go to that country just to get the item, simple online pay-ment, and the item will visit your living place. Likewise, financial markets arenow available via simple Internet connection. For investors, who are involved inStock trading, held in a centralized place, and who are looking or more efficienttrading instruments, will appreciate considerable advantages o CFD trading, atrading instrument, developed not so long ago. In this tutorial you will find allmain principles o CFD trading, which will lead to your better understanding othis innovative market and to more successul trading. Welcome to the world oCFD market!

INRODUCION


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History of CFDs

CFDs are relatively new trading instruments. Te history o CFD trading goesback to the early 1990s. We can explore the origination o other financial prod-ucts, like utures (in 1730s), options (in 1973), etc. to make sure that CFDs are

innovative instruments. Because o human being searching or new opportuni-ties and solutions all the time, it is quite predictable that these new ones wouldhave arisen a great interest in the financial market. Due to a range o advantagesthat you can enjoy while trading CFDs, they are gradually becoming more andmore popular. Nowadays, we come across with more and more people, tryingthemselves in CFD trading. Every year new CFD books and tutorials are beingpublished, new seminars and trainings are being organized, thus rising peoplescompetence about this financial product.

CFDs were originated by a London derivative brokerage firm called SmithNew Court which was later bought out by Merrill Lynch. Brian Keelan andJon Wood played a great role in the invention of CFDs. So why did appearthe necessity to invent CFDs? Clients of New Court wanted to hedge theirstock positions on the London Stock Exchange, and CFDs were perfect toolsto do it by going short, as well as getting an opportunity to trade on margin.Apart from that, CFDs were a way to avoid stamp duty which is an addedbonus. Later on, CFDs stopped being used only by hedge funds and became

widespread among retailers. Te first CFD provider company was GNI, wholaunched GNI ouch online trading system. By using this system, the trader

CHAPER 1

HE BASICS YOU SHOULD KNOWABOU CFD RADING


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had a direct access to the London Stock Exchange, getting an opportunity tosee live quotes of each asset.Starting rom 2002, other countries o the world also opened their doors to thisnew instrument. Te first country to do it was Australia. Since then, CFD tradinghas become more and more popular, spreading roots in Germany, France, Nor-way, Italy, Singapore, etc..Nowadays, the number o people, interested in this kind o trading, are consid-erably increasing. Te volume o CFD trades is estimated about 25-30% o dailyequity trades in the London Stock Exchange and 10-15% o the total transactionsin the Australian Stock Exchange. Te increase o CFD traders is directly propor-tional to the increase o CFD providers. So, newer and newer CFD providers areappearing in the world, offering different services to their clients.

What is CFD?

I you have an intention to improve your skills in financial markets and you are

exploring new spheres to try your hand at them, it is worth studying CFD tradingand trying yoursel in it. So let us see what the essence o this trading is.CFD (Contract or Difference) is a derivative financial product, since it derivesits value rom another financial asset. CFDs will allow you trading on prices,moving up or moving down, without physically possessing the underlying asset.Te underlying asset in most cases is a stock, but there are also CFDs or Indices,Commodities and other instruments.According to the traditional definition, CFD is a contract between two parties, a

buyer and a seller. I the difference between the asset open price and its price atthe moment o closing the contract is positive, the seller pays to the buyer and,just on the contrary, i that difference is negative, the buyer pays to the seller.CFD trading is almost like Stock trading. Te only difference is that while youtrade Stock CFD you do not own that Stock, you just use the price fluctuationsof that Stock in order to speculate. Let us assume that you have decided to tradeGoogle stocks in CFD market. Te expression trading Google stocks does notmean that you own that stock, aiming to buy or sell it for a profit. It means that

you just trade the price difference of that instrument, going long or short. So,technically, CFD trading is performed the same way as Forex trading. You trade in


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two directions, i.e. you buy a stock, expecting its price to go up in order to sell itlater with higher price and vice versa, you sell a stock, expecting its price to drop inorder to buy it later with a lower price. In both cases you pursue only one purpose- to get a profit. If you fall short of expectations, your trading completes with losses.

What is an underlying asset?

I you have decided to trade a CFD, you are supposed to make an agreement to

trade the price difference o the underlying asset between the current and utureprices. Underlying asset is a term o derivative trading. As already has been men-tioned, CFDs are derivatives, the prices o which are derived rom underlyingassets. Various products can serve as underlying assets.CFD traders are mainly involved in Stock CFD trading. In this case Stock CFDderives its price rom a Stock and as that concrete Stock price changes, your StockCFDs price changes simulteanously. Actually, by becoming a CFD trader, you geta wide access to the worlds largest stock markets. Are you interested in shares

o U.S. companies? You have a real opportunity to enjoy trading such popularstocks, as Google (#S-GOOG), Facebook (#S-FB), Apple Inc (#S-AAPL), Mic-rosof Corporation (#S-MSFT), etc. Do you wish to try yoursel in European orAustralian stocks? You are ree to do it. All you need to do is just to choose a CFDprovider, which will correspond to your preerences. Tere are providers that o-er only American stocks, others may be specialized in European stocks, and youcan also encounter a provider, offering both at the same time.Indexes are also widespread underlying assets in CFD market. What is an in-

dex? You may ask. It measures the price change o a particular number o stockso a particular country. o make it more precise, let us suppose that we want tomeasure the price change o U.S. stock market. For example, we find 500 best op-erating companies in the USA, study stock prices o those companies and makea stock index. One o the most popular stock indexes is SnP500or Standard &Poors 500, an index, based on 500 most widely stocks in NYSE (New York StockExchange). Another popular index is CAC 40, tracking 40 largest French stocks,or DAX 30, representing 30 largest stocks in Germany. Indexes are usually quot-

ed against the currency o the country to which they belong. For example, CAC40, being an index o French stock market, is quoted against Euro. So, Index
http://www.ifcmarkets.com/http://www.ifcmarkets.com/en/trading-conditions/stockshttp://www.ifcmarkets.com/en/trading-conditions/stocks/GOOGhttp://www.ifcmarkets.com/en/trading-conditions/stocks/FBhttp://www.ifcmarkets.com/en/trading-conditions/stocks/AAPLhttp://www.ifcmarkets.com/en/trading-conditions/stocks/MSFThttp://www.ifcmarkets.com/en/trading-conditions/indices/SP500http://www.ifcmarkets.com/en/trading-conditions/indices/CAC40http://www.ifcmarkets.com/en/trading-conditions/indices/DAXhttp://www.ifcmarkets.com/en/trading-conditions/indices/DAXhttp://www.ifcmarkets.com/en/trading-conditions/indices/CAC40http://www.ifcmarkets.com/en/trading-conditions/indices/SP500http://www.ifcmarkets.com/en/trading-conditions/stocks/MSFThttp://www.ifcmarkets.com/en/trading-conditions/stocks/AAPLhttp://www.ifcmarkets.com/en/trading-conditions/stocks/FBhttp://www.ifcmarkets.com/en/trading-conditions/stocks/GOOGhttp://www.ifcmarkets.com/en/trading-conditions/stockshttps://plus.google.com/share?url=http://www.ifcmarkets.com/en/forex-trading-books/cfd-tutorialhttp://www.linkedin.com/shareArticle?mini=true&url=http://www.ifcmarkets.com/en/forex-trading-books/cfd-tutorialhttps://www.facebook.com/sharer/sharer.php?u=http://www.ifcmarkets.com/en/forex-trading-books/cfd-tutorialhttp://ctt.ec/ez23Ohttp://www.ifcmarkets.com/


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CFDs will allow you speculating on price changes o a number o stocks, creatingsome good trading opportunities or you.And what i I want to trade commodities? One may ask. Commodity CFDsare also available. I you are specialized in Oil trading, are amiliar with its pricemovements, then trading CFD, based on Oil, may be a real godsend or you.rading price changes o Coffee, Cocoa, Wheat, Soybean, Oat, etc. may also bebeneficiary or you.

What is attractive in CFD market?

Te growing interest towards this financial product is the best evidence o itsattractiveness. But what makes it so attractive? One may ask why to trade a CFDi I can trade a common Stock. Actually, there are a wide range o differencesbetween them, due to which many Stock traders have already passed to CFDtrading market. Let us see the main differences:

LeverageI you track the price movement o a CFD with that o a common Stock,you will see that the Stock CFD moves the same direction as the physi-cal Stock. Te price o CFD repeats the price dynamics o the underly-ing asset. Ten why do most people preer trading CFDs? Te answer isquite simple the advantage o leverage, due to which you enhance yourpotential returns. In Stock market i, or example, an Apple stocks priceis $500, you should pay the whole sum in order to enter the market. Te

conditions are different in CFD market. Here you need to pay only asmall percentage o your trading capital. Tis percentage differs, depend-ing on the Stock type and on a CFD provider. Some offer 1% margin,others 5%-10%. Let us agree that trading Stocks with lower investmentsare ar more obtainable.However, leverage is a tool magniying both your profits and losses. Be-ing an advantage in one case, it may become a disadvantage in anothercase. Let us take that we want to buy an Apple stock, with the price o

$500 and the margin o 10%. Tis means that we pay only $50 o theStock actual price. Te Apple stock increases in price, reaching $650,
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thus making your profit $50. Now imagine that the stock decreases inprice, reaching $450. In this case you lose 100% o your investment. So,be quite careul while using leverage.

rade on both rising and falling marketsAny CFD trader can get an opportunity to make a profit regardless othe market direction. What does it mean? Tis means that both risingand alling markets can equally bring you gains, as you trade the pricemovement o a trading instrument, without owning the physical stock.

No stamp dutyUnlike traditional stock trading, CFD trading does not require payingany stamp duty. It is quite logical as you do not own that Stock. Accord-ingly, you do not have any shareholder voting rights.

Dividend paymentLike stock providers, CFD providers also pay dividends to traders onlong positions. So, dividend adjustment is credited to the clients ac-count, in case o going long, and is debited rom his account, in case ogoing short.

No expiry dateAnother key advantage o CFD trading is that you can trade them with-out any expiry date, unlike other derivatives, that become worthlessupon expiry. Tis means that you can keep your positions open as longas you wish. No limitation, no restriction. You are ree to manage yourCFD account the way you like.

Low commissionLow commissions, charged by CFD brokers, can also make it quite at-

tractive to enter this market. Compared to Stock traders, CFD tradersmay get a real benefit rom cheap commissions. Sometimes they can beas low as 0.1% o your trading volume, charged only or opening a po-sition.

Access to international marketsI you wish to trade American stocks, being in Australia at the moment,you do not need to change your location. Te rise o Internet has made itpossible to get access to any market. You can enjoy various opportunities

o American, Asian, Australian and European stocks. What you need todo is just to choose your CFD provider.


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Guidelines to choose your CFD provider

When we need to buy a product, we go to a shop. Tis is a simple real lie situa-tion. No matter how ar the shop is rom our living place, we always preer goingto the best one. But what kind o shop is considered to be the best? - Te one that

offers a wide choice and resh products. But this is not enough. Pleasant commu-nication is just a necessity or a human being. Accordingly, while selecting a shop,we take into account high-quality customer service, as well. Te same criteria areapplied in financial markets. When we want to get financial services, we alwaysseek or high-quality ones, be it a bank, an insurance company or a brokeragecompany. So, afer determining to get involved in CFD trading, the first thingthat you are planning to do is to choose your CFD provider. Te growing interestin this derivative product has resulted in emergence o a number o CFD pro-

viders. Tat is why the choice o your CFD provider has really become a difficultbusiness. However, it can be simplified i you define specific criteria which willguide you on your way to orientate. Additionally, you can get use o guidelinesthat we offer.

1. Te reliability of the providerTis point should be taken into account rom the very beginning. It goeswithout saying that a company, operating since 2006, is ar more reli-

able than the one, operating since 2011. Tis may serve as a benchmarkto check the companys reliability. Another reliability indicator is i the

CHAPER 2

CHOOSE YOUR CFD PROVIDER


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company insurances its clients unds, since anyone, beore investing hismoney, wants to make sure that his money is in reliable hands.

2. Te margin requirement levelSince the key advantage o CFD trading is that it allows trading on mar-gin, knowing your providers margin requirement level is a must. In mostcompanies it usually ranges rom 5% - 10%. So consider how high theleverage that your provider offers is, never orgetting that high leverage isa tool to magniy your potential profits, as well as your losses.

3. Service chargesBeore entering any financial sphere, it is significant to know what yourexpanses are. Some providers charge service commissions. Tey maybe commissions or opening and closing a position, sometimes only oropening a position, which may range rom 0.1% - 1%. Commissions maybe charged sometimes or only Stock CFD trading, in other cases orIndex CFD and Commodity CFD trading. As CFD trading is not a stan-dardized procedure, these conditions vary rom one provider to another.

4. rading Platform

rading platorm is an online station, which will give you an access tolive quotes o any asset that interests you, enabling you to track theirprice movements. Based on this station, you make predictions and de-cide in what direction to go, i.e. to become a bull or a bear. Additionally,due to the trading platorm, you are able to manage your risks, by settinga range o orders. Tat is why it is so important to study the platorm,offered by your provider, to see i it suits you and i it is easy to use.

5. Te CFD types offered

Te wider the range o CFDs is, the more trading opportunities youhave. So, take under consideration CFD types that your provider offers.It will be better i you have an opportunity to trade Stock, Index andCommodity CFDs. Moreover, check to what markets your provider givesan access. Maybe you want to trade American Stocks, but the provideroffers only European ones, or vice versa. Choose the one which satisfiesyour requirements and interests.

6. Spreads, the difference between bid and ask prices

ight and narrow spreads are also one o the indicators to choose yourprovider. Te narrower the spreads, the more beneficial your trade willbe. Additionally, check the spread type i it is fixed or floating. Which


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one o them is more beneficial, depends only on your preerences.7. CFD account opening procedure

Tis procedure should be easy to hold, not lasting more than one day.So check with your provider what are the main procedures and require-ments to open a CFD account. Tere are companies that offer universalaccounts or trading both Forex and CFDs. So in this case you do notneed to open a separate one and can manage your trading only in oneaccount.

8. Risk management toolsCheck i your provider offers risk management tools, like or examplestop-loss order, position hedging opportunities, etc..

9. Customer serviceIt is not always easy to find necessary inormation about the provider.Customer service is there to assist you. Actually, rom the very begin-ning checking the customer support quality, you can make a general ideaabout that provider. So, customer service should be round-clock andcompetent to solve all your problems and to provide you with necessary

inormation.

Whether you are an experienced trader or a beginner, your CFD provider has adirect affect on your trading results. Be sure that your success in many aspectsdepends on the provider you have selected.


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An example of CFD trading deal

Now when you already know all principles o CFD trading, have chosen yourCFD provider, it is high time or you to see how a CFD deal is perormed, basedon a concrete example. We will use NetradeX trading platorm, offered by IFC

Markets, to see step by step how the deal is made.

Going longAs already has been mentioned in Chapter 1, going long means you open a buyposition, predicting its price to raise, aiming to sell it later with higher price, thusmaking profit.

Opening a Buy CFD position

Let us suppose that we buy 500 Facebook stocks. On the trading platorm we seebuy/sell price o 1 Facebook stock which is 67.09/67.06. So we decide to buy 500Facebook stock with buy price o $67.09 paying or it $33545. Due to leverage, wedo not need to pay the whole sum. Te minimum margin requirement, offeredby IFC Markets is 2.5%, so we need to pay only a raction o it, investing just$838.62. Let us not orget about commissions. IFC Markets holds just 0.1% o thepositions volume or opening a Stock CFD position, which is deducted rom theaccounts balance (in our example it is $33.54).

CHAPER 3

RADING IN ACION


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Closing the CFD positionSome time passes and i the market starts moving in your avor, i.e. Facebookstock increases in price, you decide to sell your stocks i.e. to close your CFD po-sition with sell price o $77.06, getting or it $38530.

Calculating your profitSince your position closing price is higher than your opening price, you havemade a profit. Tis means that your profit is calculated by the ollowing ormula:(Closing price Opening price) x 500 Facebook stocks - commission.(77.06 67.09) x 500 Facebook stocks - 33.54= $4951.46

Going shortIn CFD market you have an opportunity to make a profit on alling prices, aswell. So going short means that you open a sell position, predicting its price toall in order to buy it later with lower price, thus making profit.

Opening a Sell CFD position

Let us again suppose that we trade 500 Facebook stocks, but in this case we havedecided to earn on the alling price. So we sell our 500 Facebook stocks by 67.06rate, getting or it $33530. But as we can enjoy 2.5% margin, our actual invest-ment will be $838.25. Again 0.1% commission o the positions volume is charged,which is deducted rom the accounts balance (in our example it is $33.53).

Closing the CFD positionSome time passes and i the Facebook stocks price decreases, you decide to close

your position, in other words to buy 500 Facebook stocks by 57.09 rate, payingor it $28545.

Calculating your profitTe calculation ormula in this case is the ollowing: (Opening price Closingprice) x 500 Facebook stocks - commission.(67.06 57.09) x 500 - 33.53= $4951.47

So, based on the above mentioned examples, we see that profits can be ormedboth in rising and alling markets. Likewise, i our expectations are not justified,we complete with losses.


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Risk management tools

Knowing how to trade CFDs is not enough to say that you are an experiencedtrader. What makes you an experienced trader is your ability to manage yourtrading and to protect your positions rom any losses. CFD trade is a risky busi-

ness, because o being based on margin trading. Margin trading enhances yourprofits and in a similar manner, your losses. Tat is why it is highly recommendedthat you become aware o how to protect your losses both beore starting yourtrade and during it.

Educational materials, trainings, seminarsBeore starting your business and even when you are already involved in it, it isalways worth attending some trainings and seminars, just to raise your educa-

tional level. I you are short o time or financial means, nowadays internet is ullo ree educational materials. Being educated and trained, may lead you to moresuccessul trading.

Ability to analyze the marketBy analyzing the market, you can more easily predict its movement. Beore open-ing a long or short position, consider the global news. Always ollow what isgoing on in the world. All kind o events have a direct impact on the market.

You can also make a technical analysis, using all technical tools, like indicators,graphical objects, offered by your CFD provider. Some CFD providers have their

CHAPER 4

CONSIDER AND MANAGEYOUR RISKS


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own analytical department which presents its analytics to the customers on a dai-ly basis. You can either analyze yoursel or trust your CFD provider. In any case,analysis is a prerequisite to successully manage your trading.

Using stop-loss orderCheck with your CFD provider i it offers stop-loss order. Tis is perhaps themost effective risk management tool. Stop-loss order has a power to automati-cally close your position at a price, set by yoursel. Tis is mainly useul whenyou lack time to track your position or when your internet connection is poor.However, there are some circumstances in which stop-loss ails to be effective.For example, in case o gaps, your order may be executed not at the price, set byyou, but at the first price in the market afer the gap.

Hedging your positionsHedging is a trading technique that allows you to protect his positions rom un-predictable price movements. It goes without saying that your primary aim toenter the market is to make a profit, but in many cases the market volatility is not

allowing you to do it and all is lef to do is to protect your unds, otherwise lossesare inevitable. Hedging by CFDs may be perormed in two ways. You can eitheruse CFDs or protecting your Stock positions in Stock market due to the abilityto go short by CFDs or you may protect your CFD position by just opening anopposite position.

GET STARTED

Now then you have already learnt the basics o CFD trading, have been amiliar-ized with all its benefits and disadvantages, you are ready to enter this market. Alittle practice, a bit o patience, positive thinking and you will be a success. Goodluck to you!


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CFD Trading Books

CFDs: Te Definitive Guide to Contracts For DifferenceBy David James Norman

CFDs Made SimpleByJeff Cartridge & Ashley Jessen

Supercharge Your rading with CFDS

ByJeff Cartridge

CFDs or DummiesBy David Land

Making Money rom CFD radingBy Cat Davey

Internet sourceshttp://www.ifcmarkets.com/en/cfds
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