Professional Documents
Culture Documents
www.CFDagent.com
THE CFD TRADING
TUTORIAL
www.CFDagent.com
THE CFD TRADING
TUTORIAL
FOR BEGINNERS &
SEMI-ADVANCED CFD TRADERS
-TABLE OF CONTENTS-
2. CFDs on Futures.
CFD means Contract for Difference and it is a derivative product that can
trade any financial instrument (Currencies, Equities, Precious Metals,
Industrial Metals, Energies, Soft Commodities) without the need to own it.
CFD trading offers enormous flexibility by covering the needs of all trading
styles (scalping, day-trading, swing-trading, and long-trading).
• Different Account Types and Lot sizes (micro, mini, and standard)
4 / 44
«The CFD Trading Tutorial»
Mirroring Global Markets
When a new CFD position is opened, the profit/loss of the CFD contract is
determined by the difference between the opening and the closing price of
the underlying financial asset.
The final profit/loss of any CFD trade is calculated simply by the difference
between the buy and the sell price of the CFD contract.
(i) If the price of the underlying financial instrument touches the take-profit
price of the trade position (PROFIT)
(ii) If the price of the underlying financial instrument touches the stop-loss
price of the trade position (LOSS)
(iii) The trade can close also manually by the trader anytime he wants to
(PROFIT/LOSS)
Let's assume that a Forex trader buys 1 lot of EURUSD at 1.1002 and sells it
at 1.1022
-In order to buy 1 standard lot (100,000 USD of value), the trader
needs to have about $500 in his account (that means leverage 200:1)
5 / 44
«The CFD Trading Tutorial»
-As the position is opened the trader notices that his account is
charged with about $20. This is due to the difference between ask and
bid (in our example 1.1000 / 1.1002, which means 2 pips spread)
-As EURUSD moves 20 pips higher, the trader decides to close his
position
CFD trading has become highly popular nowadays, among world investors.
These are the main reasons:
(2) Trading rising or falling markets, choosing among a wide variety of trading
orders
(4) Choosing among hundreds of different CFD brokers, and taking advantage
of special promotions for new clients (deposit bonus, no deposit bonus,
trading rebates, etc.)
(5) Trading CFDs via the simplicity of a WebTrader platform or via the
advanced technology of the MetaTrader series of platforms
6 / 44
«The CFD Trading Tutorial»
(6) Using state-of-the art trading technology (Automated Trading, Social
Trading, API Trading, PAMM Accounts, Expert Advisors)
Trading on Margin
When an investor decides to buys shares, he has to pay the full value of these
shares. In the best case, and if his stockbroker allows it, he he can pay 50%
of the value of the shares (2:1 capital leverage).
On the other hand, CFD traders don't have to pay 50% of the value of the
assets they buy. CFD brokers usually offer leverage 50:1, or even more. That
means in order to trade $100,000 worth of shares, you need to have 2% of
the value of the position in your trading account.
In other words, you can trade $100,000 with just $2,000 in your trading
account. But that is an advantage only if you are not greed. If you tend to
leverage all your trades up to 50:1, or more, there is a 90% probability that
you will lose your capital.
Chart: As the Trading Leverage Increases Arithmetically, the Trading Risk and
the Trading Cost Increase Geometrically
7 / 44
«The CFD Trading Tutorial»
In the above chart you can see the relation between the use of high capital
leverage and the possibility of losing your capital.
The chart shows that as the capital leverage increases arithmetically the
possibility of losing your entire capital increases geometrically. If you trade
intraday, and you use 500:1 trading leverage, there is almost 100% possibility
that you will lose all your capital in a short-period. Don't be surprised, this is
based on pure math.
Professional traders avoid to leverage their trades more than 20:1, and they
don't dedicate more than 2.0% of their entire capital in a single trade
position.
8 / 44
«The CFD Trading Tutorial»
The Capital Leverage Formula
The following formula can help traders to optimize the use of capital leverage.
The capital leverage formula aims to provide a simple framework for
understanding the attractiveness of each individual trade, and therefore,
choosing the ideal leverage ratio.
Where:
The best way to start trading CFDs is by using a free Practice Account. Test
your skills on a Practice Account and then move to a Real Account.
If you start trading on a demo account contest you can sharpen your skills
and at the same time you can earn some cash.
On the other hand, a No-Deposit Bonus Account offers the chance of trading
in real terms, and if you are lucky, you can withdraw both your bonus and
your profits.
■ RoboForex
Bonus: $30 No-Deposit Bonus
• You can withdraw both the profits and the No-Deposit Bonus itself
(after meeting volume requirements)
• Roboforex requires depositing 10$ in order to verify your payment
method
• Withdraw Methods: Visa/MasterCard | Bank Wire | Neteller | Skrill |
FasaPay | Bitcoin
■ FxOpen
Bonus: $10 No-Deposit Bonus
• You can withdraw only the profits of the No-Deposit Bonus
• FxOpen requires volumes 2 standard lots
• Withdraw Methods: Visa/MasterCard | Bank Wire | Skrill | Neteller |
Fasapay | QIWI
11 / 44
«The CFD Trading Tutorial»
2. CFDs on Futures
Instead of trading Cash CFDs you can trade CFDs on Futures, given that your
CFD broker offers that feature. The great advantage when trading CFDs on
Futures is that you don't pay overnight rates. That means you can trade gold
or crude oil without having to pay any overnight rollovers. In Chapter-3, you
can find OUT what is an overnight rollover, or else a SWAP rate.
• Futures CFDs are offered in wider spreads than cash CFDs (premium
added)
12 / 44
«The CFD Trading Tutorial»
• Euro Stoxx 50 (Symbol: EU50), the German Dax (symbol: GER30), and
the FTSE 100 (Symbol: UK100)
13 / 44
«The CFD Trading Tutorial»
In the following chart, you can see the pricing of a cash CFD and a CFD on
Futures on Nasdaq (US100). The pricing is almost identical.
14 / 44
«The CFD Trading Tutorial»
3. The Cost When Trading CFDs
These are all the fees and commissions, charged by CFD brokers, that you
should know about before start trading CFDs.
All financial assets are offered with two prices (ask and bid). The spread is the
difference between ask and bid. Almost all CFD brokers charge spreads, and
nothing else. The minimum spread you will usually pay when trading CFDs is
about 1.3 pip on EURUSD.
■ Prefer STP brokers, they offer by rule considerably tighter trading spreads
than market makers
■ A clever way to reduce your trading cost is to join a Trading Rebate Plan
(see Chapter-8). Learn more about rebates at www.Forex-Rebates.com
Be Aware of Re-Quotes
A re-quote means that when you open a trade position, the price you pay is
worst than the one you have entered. That means extra cost.
15 / 44
«The CFD Trading Tutorial»
(ii) Trading Commissions Charged
CFD brokers don't usually charge trading commissions. But some CFD brokers
may charge very tight spreads by charging also trade commissions. These
commissions are calculated on a round lot basis.
The SWAP rates exist in order to balance the overnight cost of money as it is
expressed by overnight interest rates.
As CFDs are traded on margin, when you open a long or a short position it
becomes the subject of interest rate charges, as any other cash transaction.
This is because money is involved in order to finance the purchase. The SWAP
rates can be debited or credited. The difference on positive / negative swap
charges depends on the asset you are trading, and the direction you are
trading.
There are Forex currencies offering high-interest rates (NZD, AUD, etc.) and
other currencies offering low-interest rates (USD, EUR, etc.). When you trade
any Forex pair, the difference in the interest rates of the two currencies may
be positive or negative:
16 / 44
«The CFD Trading Tutorial»
(ii) if the difference is negative, then a swap amount is debited overnight.
Note, that if you trade commodities or equities, the SWAP rates will be always
negative.
The SWAP cost applies at the end of each trading day at midnight (according
to your CFD broker's server time). The SWAP rate amount is tripled on
Wednesdays, in order to cover Saturday and Sunday. That means the SWAP
rates are applied 365 days per year.
-If you trade long a Forex pair, such as AUDUSD or NZDUSD, the difference is
positive (positive SWAP rate) and it is credited in your trading account.
-If you trade long on USDZAR, or short on AUDUSD, the difference is negative
(negative SWAP rate) and it is removed from your trading account.
For example, if you buy the USD30 Index via a CFD on Futures you will pay a
greater spread, but you will not pay any SWAP charge until the contract ends.
Usually, CFD on Futures expire every 2-3 months, and mirror the price
movement of any underlying instrument exactly the same way as cash CFDs.
If you are a swing or a long-term trader, CFD on Futures is your best chance
to make money.
17 / 44
«The CFD Trading Tutorial»
CHECK THEM OUT: using the CFD broker's live chat service, or via email
Funding fees and commissions are usually charged only on withdrawals, but
most CFD brokers don't charge funding fees at all.
The funding fess, when they are charged, involve withdrawal fees of $10-20.
CHECK THEM OUT: via the CFD broker's live chat service, or via email
Some CFD brokers may charge fees for inactive accounts. These fees are
called Maintenance/ Inactive Fees.
18 / 44
«The CFD Trading Tutorial»
4. Available Financial Assets
Currency CFDs
Chart: EURUSD
19 / 44
«The CFD Trading Tutorial»
Shares CFDs
• Shares from all around the world (Europe, America, Australia, Asia)
20 / 44
«The CFD Trading Tutorial»
Index CFDs
• Indices from all around the globe (Europe, America, Australia, Asia)
21 / 44
«The CFD Trading Tutorial»
CFDs on Metals
22 / 44
«The CFD Trading Tutorial»
Energy CFDs
• Gasoline CFDs
23 / 44
«The CFD Trading Tutorial»
CFDs on Soft Commodities
• Cocoa CFDs
24 / 44
«The CFD Trading Tutorial»
Other CFD Types
• Trading Bitcoins
• Carbon Trading
25 / 44
«The CFD Trading Tutorial»
6. Important Tips When Trading CFDs
These are some key tips when you are trading CFDs:
Don't deposit too much on your first trading account, that can make you
riskier. Deposit as much you need to cover your initial trading positions.
If you are not fully experienced with trading, start with a practice / demo
account, then move to a micro lot account, then to a micro lot account, and
finally to a standard lot account.
Don't over-trade your positions. Keep as much margin you need to support
your final stop-loss.
Leverage your trade wisely. Think of your entire capital, and don't risk more
than 2% on any individual position. If you hold USD10,000 then don't risk
more than $200 on any individual trade.
There are some groups of currencies that tend to trade on the same direction.
This is a very strong group containing 4 pairs:
Notes:
1. EURUSD and GBPUSD are correlated +0.8 to +0.9 (where +1.0 is the
absolute correlation between two assets)
27 / 44
«The CFD Trading Tutorial»
(3) Learn to Place Pilot Orders & Pending Orders
Never open a trade position before you have calculated the cost of your stop-
loss.
-For example, if you want to risk no more than $200 on a single trade, open a
pilot position of 0.01 lot, and check your stop-loss.
-If you see that the 0.01 lot trade results in $20 risk, then you now that you
need to open an additional position of 0.09, in order to risk exactly $200 in
total.
These pilot orders can prove very useful if you are a beginner trader.
An alternative option, is to use a demo account, and place your pilot orders
there before you execute them on your real account.
Pending orders can save you a lot of time and can help you achieve ideal
entries. In Chapter-7, you can learn more about pending orders.
You will enjoy more success when you trade assets that you already know,
especially if you watch them closely.
Avoid the unknown, and again, use pilot orders when you trade assets for the
first time. Most professional traders are specialized not only to certain
markets, but even to particular instruments on those markets.
28 / 44
«The CFD Trading Tutorial»
For example, there are many professionals trading only Gold, or only Crude
Oil, or only US30, or only EURUSD. Specialization means better information
and better information means power when you are a trader.
29 / 44
«The CFD Trading Tutorial»
7. The Full Set of CFD Trading Orders
There are two general categories of trading orders: the market orders,
and the pending orders.
Image: Example of a Market Order in MT4 (Just select the Lot size and
30 / 44
«The CFD Trading Tutorial»
Guaranteed Stop-Loss Orders (GSLO Orders)
• Limit Order
Buying or selling a financial asset at a per-determined (limited) price.
31 / 44
«The CFD Trading Tutorial»
Sell at price that is equal or lower than the price specified in the trading order
(useful to place it below a major support level).
(v) Buy Stop Limit
This order type is the combination of the two first types being a stop order for
placing Buy Limit. As soon as the price reaches the stop-level price indicated
in the order (the Price field), a Buy Limit order will be placed at the level,
specified in Stop Limit price field. The stop-level is set above the current Ask
price, and the Stop Limit price is set below the stop-level.
(vi) Sell Stop Limit
This order type is a stop order for placing Sell Limit. As soon as the price
reaches the stop-level indicated in the order (Price field), a Sell Limit order
will be placed at the level, specified in Stop Limit price field. The stop-level is
set below the current Bid price, and the Stop Limit price is set above the stop-
level.
32 / 44
«The CFD Trading Tutorial»
(iii) Special Pending Orders
Large CFD brokers may offer additional pending orders, such as:
• OCO Order
OCO means One-Cancels-Other. Based on this order type, if a trade is
executed then another trade is automatically canceled.
• GTC Order
GTC means Good-Till-Cancelled. A GTC order remains in the market
active until it is either filled or canceled.
33 / 44
«The CFD Trading Tutorial»
8. CFD Trading Rebates
Example:
For example, let’s suppose you join a rebate plan offering $6 per full
traded lot.
◙ 1 lot = $100,000
◙ for every $100,000 that you trade you receive $6 back as a rebate
34 / 44
«The CFD Trading Tutorial»
How Rebates Works?
Rebates Plans
These are some advantages when joining a rebate plan (for example,
via Forex-Rebates.com):
■ You Pay the Same Spreads / Commissions as if you hadn’t Join the
Rebate Plan
35 / 44
«The CFD Trading Tutorial»
Selecting your First Trade Rebate Plan
Here are some of the best CFD Trading Rebate Plans, from Forex-
Rebates.com. In the following table you may find details about those
plans and how you can join them. Additionally, there is information
about the CFD brokers, including regulation and account details. You can
take advantage of a Forex Bonus and a Forex Rebate at the same time.
Notes:
(2) Make sure the chosen CFD broker supports your own funding
method
(3) Make sure that the chosen CFD broker supports the financial assets
you wish to trade
(4) Promotions (such as deposit bonuses) are useful, but don't make
them your first priority when choosing a brokerage firm
36 / 44
«The CFD Trading Tutorial»
The Need for Reliable CFD Brokers
CFD trading requires opening a trading account with a CFD broker. CFD
brokers usually don't charge trade commissions, they charge only a spread
between the ask and the bid price.
Types of Brokers
Just like when trading the Foreign Exchange Market, there are two classes of
brokers:
DMA providers (ECN/STP brokers) sent trader's orders directly to their order
book. DMA providers typically charge tighter spreads than market makers, but
they may charge trade commissions.
-In total, the trading cost when trading with a DMA broker is tighter than the
trading cost when trading with a market maker.
Market Makers offer a market within a market. They let their clients trade
against each other and they collect the spread between bid and ask. Market
makers do no charge trade commissions, but the spreads they offer are
usually very wide. For example, the minimum spread on EURUSD is 2.0 pips.
Re-quotes and delays on order execution are common phenomenons when
trading with market makers.
It is better to trade with a regulated DMA broker than trading with a market
maker. Professional traders definitely avoid to trade with a Dealing-Desk.
37 / 44
«The CFD Trading Tutorial»
Basic Characteristics of a Good CFD Broker:
(ii) It offers tight transaction cost (narrow spreads, low commissions, no re-
quotes)
(iii) It provides a wide asset index, and many different classes of financial
instruments (CFDs, CFDs on Futures, etc.)
(v) It provides good variety of trading platforms (Allows trading CFDs via
MT4)
(vi) It supports many different fund methods, and does not charge
commissions on withdrawals, or on inactive accounts
(vii) If offers fast customer service via email and live chart support
In the following table you may find some regulated CFD brokers,
with many years in the market.
38 / 44
«The CFD Trading Tutorial»
COMPARE CFD BROKERS
This is a list of CFD Brokers offering MT4/MT5, tight spreads, and funds
safety via segregated client bank accounts.
commissions
■ Small distance
to place a stop-
loss
■ Low deposit
requirements for
true ECN trading
39 / 44
«The CFD Trading Tutorial»
PLATFORMS: ACCOUNT: Very tight spreads and
■ MT4/MT5 □ 200 minimum trade commissions.
Banks commissions
■ Low deposit
requirements for
true ECN trading
□ NO ■ Crypto assets
■ Spread starts METHODS: Review Broker:
40 / 44
«The CFD Trading Tutorial»
in 2009 commissions • Skrill
• Domiciled in Malta ■ Low deposit • Neteller
requirements for • FasaPay
true ECN trading • UnionPay
• Bitcoin
41 / 44
«The CFD Trading Tutorial»
THE CFD TRADING TUTORIAL
COPYRIGHT INFORMATION
-FREE EBOOK-
The information presented in this eBook represents the view of the author.
Every attempt has been made by the author to verify all information included
in this eBook, but there is no guarantee about the accuracy and the reliability
of any information presented in this eBook. In addition, this Guide includes
affiliate links. This eBook is not intended for use as a source of financial or
investment advice.
RISK WARNING
Before starting to trade in the Forex market, you should be very careful
regarding your investment objectives, your existing level of experience and
your trading risk appetite. Never trade capital you cannot afford to lose.
When trading Forex, Options and other leveraged forms of Financial
Instruments there is a considerably high exposure to risk. You should be fully
aware of that risk before deciding to trade in those markets. The Forex
Trading Leverage may work against you as well as for you. There is always a
high likehood that you could lose all your funds.
Any opinions, research, brokers, trading rebates, links, analysis or any other
information included on this ebook are provided as general market
commentary, and do not constitute investment advice in any way.
www.CFDagent.com
42 / 44
«The CFD Trading Tutorial»
OTHER EBOOKS
BY QEXPERT.COM
(click to visit)
43 / 44
«The CFD Trading Tutorial»
The CFD Trading Tutorial -Copyright © 2016-2022
CFDagent.com ©-All rights reser ved wor ldwide
www.CFDagent.com
44 / 44
«The CFD Trading Tutorial»