Traditionally, on the Forex market trader’s attention is drawn to currency pairs. However, by adding the next pair, in the market review window of MetaTrader4, there is a section of symbols with CFD contracts for differences. The option allows access to a long list of assets encrypted under strange icons, like the Twitter hashtag. These are tickers – symbols of instruments on world stock exchanges.
What is CFD?
Three hundred years ago, an auction procedure was introduced for determining the price of agricultural products, by concluding transactions with equal supply and demand held at a special platform – the exchange. Now, this rule is extended to all goods and raw materials, securities of enterprises – stocks and debentures (bonds).
The Forex market, which, being essentially decentralized, eliminates the manipulation of national currencies of states. Currencies are traded on the international interbank market without reference to the site and are not subject to regulation when the rate is determined by global supply and demand.
Speculators of the 20th century introduced a new class of instruments – derivatives from exchange assets. Futures and stock options, financial instruments and commodities allowed for a reduction in the costs of commission payments to stock exchanges, avoiding taxes and taking advantage of leverage.
Leverage allows you to trade an asset package (100 shares or 1,000 bonds, etc.) for 10% of the cost. At the same time, profit or loss is accrued in the amount of 100%.
CFD is a derivative contract, the percentage of the cost is taken from a stake (or any other asset called “base”) equal to 1 lot. Unlike futures, a lot can split up like a currency lot to a minimum value of 0.01 lot. You can learn more about CFDs from this AvaTrade review.
CFD contracts are an over-the-counter offer between a broker and a trader, in which the purchase or sale price of an asset (from the broker’s list) is taken as zero. A trader who has entered into a contract makes a pledge (2 or 5% of the market value of the asset), knowing that when he closes a position, he will either make a profit with a positive trading result, or a loss will be written from the account.