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Speculating with Forex CFDs - ORBEX

Speculating with Forex CFDSCONTENTS0102030405070910 Disclaimer introduction How to Start Trading CFDsCFD BasicsHow to Trade Forex with CFDsCFD Initial and Variation Margin Advantages and Disadvantages of Using CFDsDisadvantages of CFDsSPECULATING with Forex CFDS01 DISCLAIMERRISK DISCLOSUREThe information contained in this eBook is provided for information purposes only. The information is not intended to be and does not constitute financial advice, is general in nature and is not specific to you. Before using the information contained in this eBook to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.

CFD Basics How to Trade Forex with CFDs CFD Initial and Variation Margin ... INTRODUCTION A CFD or Contract for Difference is a financial derivative that does not expire. It consists of a contract between a CFD provider and a ... SPECULATING WITH FOREX CFDS. 10 ...

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Transcription of Speculating with Forex CFDs - ORBEX

1 Speculating with Forex CFDSCONTENTS0102030405070910 Disclaimer introduction How to Start Trading CFDsCFD BasicsHow to Trade Forex with CFDsCFD Initial and Variation Margin Advantages and Disadvantages of Using CFDsDisadvantages of CFDsSPECULATING with Forex CFDS01 DISCLAIMERRISK DISCLOSUREThe information contained in this eBook is provided for information purposes only. The information is not intended to be and does not constitute financial advice, is general in nature and is not specific to you. Before using the information contained in this eBook to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.

2 None of the information contained in this eBook is intended as investment advice, as an offer or solicitation of an offer to buy or sell or as a recommendation, endorsement or sponsorship of any security. ORBEX is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions. There is a substantial amount of risk in trading currencies and CFDs and the possibility exists that you can lose all, most or a portion of your capital. ORBEX does not, cannot and will not assess or guarantee the suitability or profitability of any particular investment or the potential value of any investment or informational source.

3 The securities mentioned in this eBook may not be suitable for all investors. The information provided by ORBEX , including but not limited to its opinion and analysis, is based on financial models believed to be reliable but it is not guaranteed, represented or warranted to be accurate or complete. Your use of any information from this eBook or ORBEX site is at your own risk and without recourse against ORBEX , its owners, directors, officers, employees or content providers. Speculating with Forex CFDS02 INTRODUCTIONA CFD or Contract for Difference is a financial derivative that does not expire.

4 It consists of a contract between a CFD provider and a speculative trader to exchange the difference between the price the contract is initially dealt at and the price that the contract is eventually closed out at. If the trader s view is correct and the market moves in their favor after a CFD contract is opened, then the difference will be a positive one that they will receive from the CFD provider. On the other hand, if the market moves against them, then they will have to pay out the negative difference to the CFD provider. Forex traders can use CFDs to speculate on exchange rate movements in a variety of currency pairs, although most CFD providers offer CFDs in only the major currency pairs and crosses.

5 For example, these might include the EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD and EUR/JPY currency pairs. Dealing spreads on CFDs depend on the CFD provider, but they can be as tight as one pip for currency pairs like EUR/USD, although one and a half to three pip spreads are more typical. This is similar to the best dealing spreads offered by online Forex locations that require the payment of capital gains tax, CFD trading profits could be taxable, while CFD losses may be with Forex CFDS03 HOW TO START TRADING CFDSIn order to begin trading CFDs, you will need to identify a suitable and reputable CFD provider.

6 These companies typically now operate with online interfaces known as trading platforms where you can open and close CFD transactions via your computer if it connected to the Internet. Some online Forex brokers are also CFD providers that offer CFD trading in addition to regular Forex transactions on their trading platforms. Quite a few CFD providers even offer access to the Metatrader 4 trading platform which gives the trader access to Forex , commodity futures and other financial instrument CFDs. Opening a CFD account with an online CFD provider typically requires a nominal initial investment.

7 In the UK, some CFD providers like City Index offer to open an account for just 100, while other CFD providers might require higher minimum deposits. Due to recent restrictions on over the counter transactions, the Securities and Exchange Commission has banned citizens and residents from trading CFDs. Some CFD websites are therefore unavailable for viewing by people located in the United with Forex CFDS04 CFD BASICSOne of the chief advantages of trading CFDs is the high leverage available. The maximum some online Forex brokers will allow is 500:1 leverage on Forex trades for residents, and that is equivalent to the very low margin requirement some CFD providers offer for Forex a result, CFD trading allows the trader to take a much larger position than they could with a direct purchase since the high amount of leverage winds up costing them only a fraction of what a direct purchase would entail.

8 Under normal circumstances, a direct purchase would cost the trader either the full amount of the transaction, 50 percent in the case of stocks, or 20 percent in the case of futures contract. To establish an equivalent Forex position by using a CFD, a trader would require only up to percent of the value of the CFD. The effect of this high amount of leverage on a position means that a larger position can be taken with a smaller amount of initial capital. Of course, while profits may be magnified due to leverage, so are losses. Because CFDs can be sold short as well as purchased, Forex traders can use CFDs to hedge existing positions or assets.

9 For example, if a Forex trader has an existing position in a currency pair with a Forex broker, they could take an opposite position in a CFD to establish a hedged position. If the market goes against the initial position, the gains on the CFD position would offset the losses. Speculating with Forex CFDST rading Forex with CFDs is much the same as trading currencies in the spot market with some key differences. The main difference consists in the amount of leverage on any given position. A Forex trade has a leverage ratio determined by the trader, 50:1, 100:1, 200:1, 500:1, etc. CFDs on the other hand, are margined as either a fixed percentage of the trade s notional value typically to percent or as a margin factor, for example a 500X stake, which means 50 times the money deposited as margin.

10 Also, Forex quantities are traded in lots such as 10,000 or 1,000,000, while CFD contracts are traded in specific amounts chosen by the trader opening them. A quote for a Forex CFD is made with a bid and an offer, much like a Forex spot trade. The CFD transaction is margined based on the notional value of the transaction and the fixed percent quoted by the CFD provider, while the Forex trade is margined at a specific leverage ratio. Leverage, or holding a large position with a smaller amount of money placed on deposit as security, is one of the reasons that CFDs have become such a popular trading vehicle.


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