Detailed introduction to Leveraged CFD Trading

The CFD reflects the price fluctuation of a financial asset within the time of opening the trade and the time of the closing trade.
In case of long position
If the closing price is higher opening price CFD broker funds the difference between the opening and closing prices of the CFD
If closing price is lower opening price the traders pays to the CFD broker the difference between the opening and closing prices of the trade
in Cas of a short position
If closing price is lower than opening price the CFD broker pays to the customer the difference between the opening rate and the closing rate
In the case that the closing rate is higher than the opening rate the customer pays the CFD broker the arbitrage between the opening rate and the closing rate of the underlying asset
All traders are subject to commissions or other charges made by the CFD broker
Since CFDs are leveraged trading instruments; they are traded on margin. Instead of paying the full value of the opening position customer pays a fraction which called “initial margin” to open the position, always required to maintain minimal balance in order to sustain open positions at all times. the customer may be obliged to repay the margin calls at instant notice, particularly in volatile market conditions. If the customer fails to top up his margin when asked, he is facing the risk force closing his position at a loss.
A CFD enables investors to speculate on the future market fluctuations of an underlying asset, without legally owning or taking physical delivery of the traded asset
. Example 1: Assume the rate of gold is quoted at an offer price of $400.00 and the customer is interested in buying 100 units of Gold as a CFD at the offer price of $400.00. Assuming the CFD broker sets the margin of the CFD at 1%, the initial margin the customer has fund will be 0.01 x $400.00 x 100 = $400 the customer can open the position with a capital of $400 rather a payment of $40,000 which is the actual position value. The leveraging effect suggests that if the markets move in favor of or against the customer’s position, the corresponding profits or losses will be multiply.
Example 2:
An example of a Profit
Let us Assume that the spot price of the Gold unit has risen and now it is quoted at a bid price of $405.00 the customer then chooses to sell his CFD at $405.0. he will make a profit of $500 [($405.00- $400.00) x 100]. (ROI) from the CFD works out to 150% (500 ÷ 200). This compares to an ROI of 2.5% if the customer would have bought gold in the market.
CFD Trading carries a high level of risk to the customer’s investment especially in volatile markets.
Since CFDs are traded on the OTC market, and you can agree on your derivative contract directly with one of the Best UK CFD Brokers.
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