What are CFD?
First appearing in Great Britain in the 1990s, CFDs were only introduced to individuals after 2000.
The CFD market to the general public was opened by the broker Gerard & National Intercommodities (GNI) but it was not until 1996 that the first two trading platforms emerged two weeks apart, those being CMC and Midas (now trading as Saxo bank). It then became easier to access live prices and invest in real time.
Today it is estimated that nearly a quarter of the UK stock market turnover is related to CFDs. They now extend to all stock markets.
CFDs also offer many advantages compared to other products such as warrants or options:
• No expiry dates
• Their prices do not vary in line with market volatility.
• Possibility to make a transaction using the leverage effect authorising positions taken on the market, exceeding the initial investment value.
• Low transaction costs and the many assets offered by the CFD have made them very popular with individual investors.
The advantages of CFD
A simple derivative product: the CFD
CFDs are financial derivative product tools that enable you to make a profit linked to increase or decrease changes in the underlying asset, (shares, index, commodities / energy or currency).
o The same price as that of the underlying asset. Simple tracking of the underlying asset prices to allow gains and losses to be quickly calculated.
o Unlike options, warrants and other future contracts, there is no expiry date, CFDs do not have any time value. They do not lose value over time. You can keep them over a long period of time without having to worry about a date for closing positions.
o Quick and easy subscription: through their online brokers, investors can take positions on a real-time asset or as it becomes available. Each stock order on a CFD result gives an immediate confirmation via the platform. Some CFD brokers offer their investors direct access – “CFD DMA” to the underlying asset order book.
CFDs offer a number of advantages which attract more and more investors.
Optimize your CFD
ENJOY TRADING SUCCESS ON CFDs!
To succeed in trading on CFDs – the basic rules: The most obvious choice for brokers.
It has to be reliable and provide clients the necessary tools for predicting the development of their assets. In fact, many novice traders speculate on instinct or do a partial analysis or no analysis of the macroeconomic data however essential to a good trading practice.
Furthermore they may neglect market analysis, wait too long before taking a position and going past the appropriate time (“action point” or “reaction point”) to open or close a position on the CFD.
To help clients succeed in their trading on CFD, Bank Invest Capital have put some tools on line to aid with decision making, such as:
– Continuous information and professional advice on the underlying asset
– A technical analysis of historical price movements on the instruments.
– Timelines associated with each underlying asset highlighting important dates such as dates of general meetings, settlement dates and dividends.
– Sector performance of listed companies.
To open or close a position on a CFD:
1- To open a position on the CFD market means buying or selling a specific quantity of CFD.
2- To close a position involves making an offset for the same quantity.
E.g. On opening, an investor buys 50 CFD. On closing their position, they will have to sell 50 CFDs on the same underlying asset. Conversely, if on opening, they sell 50 CFDs, on closing they will buy 50 CFDs of the same instrument.
Between opening and closing a CFD position, the underlying asset price will vary, generating either a profit or loss. To close a position, hoping to make a profit, there are two methods available:
• Pass an offset order through your broker as done when opening. Be sure of the underlying asset, the quantity and the initial order placed. This option requires a very good internal organization and methodical monitoring.
• Go through a platform presented in a table summarizing all previous orders, their underlying assets, quantity, live prices and potential plus or minus value.
This method has an advantage to eliminate the inconveniences of the previous method as it makes less demands on the organisation. It offers real-time monitoring of your operations and a quick response rate with a “close the position” button.
There are some basic rules to follow to hopefully generate profits on the CFD market
CFDs on currencies function in the same way as a simple CFD. So, if an increase in the currency rate is expected, investors will buy on this basis and vice versa.
As with a simple CFD, Spread and trading margin are also used with CFD currencies.
• CFDs are not necessarily investments that a low risk taker would choose like conventional savings products guaranteed by the banks,
• Unlike shares, there are currently no French or European regulatory services that will provide a prospectus on a CFD
• There are no guarantees linked to CDF in the event of the service provider defaulting. They are traded over the counter (OTC).
• CFDs allow you to speculate on the instrument with a relatively low investment thanks to the leverage effect.
Why invest in CFD on the Forex market ?
• Profit from increases and decreases in the market
Investors can trade on CFD when prices are increasing and decreasing. They can buy a CFD or sell it without having to hold on to the CFD beforehand.
This technique of “taking a short position”, enables you to play on the instrument’s decreased price to sell it more expensively and by rebuying it at an inferior price. Note that the risk of losses in excess of the initial investment amount is recurrent when speculating on the instrument.
CFDs on index, commodities and currencies offer trading with no commission while CFDs have a low commission rates on shares, (from 0.04% on European equities). There is no loan fee charged on titles for short-term positions if they are held, (overnight position). Furthermore, the lack of management fees on the CFD is a tool that is more financially beneficial than stocks.
The world stock markets
• In addition to numerous French and international securities, we offer you the opportunity to negotiate on most financial assets using CFDs. You can therefore take a position on a wide range of instruments such as “commodities” or raw materials including gold and silver, industry sectors and bonds.
Investments from € 500
The minimum sum required to open a CFD or Forex account is €500.
The leverage effect
This gives the investor the opportunity to open a much more significant position than their initial investment. The CFD leverage will make gains increases possible but in the same way it can also increase losses. We have management tools to help minimize these risks.
CFD’s FUTURES CFDs are “financial contracts for difference”. They belong to the family of derivative products and can play both on the increase and decrease of an underlying asset on which they offer a wide variety of choice (gold, oil, many currency pairs). A futures contract is a forward agreement. It is a pledge at a given price between a buyer and a seller to exchange an underlying asset at a future date and at a price determined in advance. As CFDs, investors can trade on futures contracts when prices are bullish or bearish. They can both buy or sell without having to hold on to these future contracts beforehand. Both have a leverage effect even if it is more significant on Futures due to the size of the contracts. Unlike CFDs, futures contracts are standardised products and all the conditions are known in advance: the quantity, the nature of the underlying asset, the price set for the future date, due date, the delivery method and the margin value. None of these conditions can be changed. Finally, the associated transaction costs for Futures contracts are reduced compared with CFD because of the lack of Spread.
How do you choose between Futures and CFD?
• If your choice is based on futures contracts, you will need to monitor the due date unlike CFDs that have no expiry date. In fact, if you forget to close a position or to extend it on the next due date, it will be delivered if you purchased or surrendered it, if you have sold the underlying asset concerned.
• The quantity of the underlying asset for Futures contract is usually large and significantly increases the value of a contract which is usually worth tens of thousands of euros.
• Meanwhile, CFDs are more affordable with lower values and therefore attract smaller investors.
• The range of underlying assets for future contract is large and varied but nevertheless, they remain less widespread than those offered with CFDs.
• Unlike a CFD, currently there are no standardized futures contracts for a simple action. Also to open a futures contract on a given action, it will come back via the broker to be structured.
• The conditions of market order execution and limits are different between these two types of products. The order types available should be checked for each contract.
CFDs on Indices
CFDs on indices are popular products with investors because they can diversify their portfolios while minimizing risks on either a sector or on a sample of values, rather than a single action. CFDs on indices have many advantages:
1. There is no transaction fee to pay for a purchase or sale. There is only the spread to pay.
2. Taking positions is easier, as instead of the usual financial share analysis, you have the general market trend to guide you.
3. Positions are taken based on increases and decreases.
4. There is a significant leverage effect.
5. The action is listed in real-time streaming.
The main indices are available as CFDs Les principaux indices such as the US indices, some European and Asian indices.
• S&P 500 (US)
• Dow Jones Industrial Average (US)
• FTSE 100 (London Stock Exchange)
• DAX®30 (Frankfurt Stock Exchange)
• MDAX® Index (Frankfurt Stock Exchange)
• Dow Jones Euro STOXX 50 Index
• SMI (Swiss Market Index)
• CAC 40 (Euronext Paris)
• AEX 25 (Euronext Amsterdam)
• IBEX 35 (Bursatil Espanol)
• Denmark Top 20 (OMX Copenhagen)
• Sweden Top 30 (OMX Stockholm)
• ASX S&P 200 (Australian Stock Exchange)
• Nikkei 225 (Tokyo Stock Exchange)
• S&P 500 (US)
• S&P/MIB 40 (IDEM/Milano Stock Exchange)