How To Trade CFDs With HotForex: What's A CFD?
A CFD is a financial derivative whereby a buyer and seller come together and agree to pay each other the difference between the current asset price (when the trade is taken) and a future price. If the current price is higher than the trade value, the buyer is making money. If the current price is lower, then the seller is making money. The value of the CFD will typically move cent for cent with the underlying asset. The buyer of the CFD does not own any underlying asset, but rather is simply making a bet on the direction of the underlying asset. CFDs are much less capital-intensive than other assets as only margin is required to open a position and those margin requirements can be quite small due to the high leverage provided. This can be a doubled-edged sword, providing big gains when right, but potentially huge losses when wrong and risk is not controlled.
CFDs trade in a similar way as stock or futures contracts, but there are several factors traders must be aware of. Please note that all current CFD specifications are subject to change. Check current specifications before trading.
- Commissions and spreads: HotForex charges a commission on certain CFD products. The commission, when applicable, is typically $2 per trade (round turn). Hotforex also requires the trader to pay the spread. This means the trader must always buy at the offer price and sell at the bid price. Spreads are fixed but vary by contract.
- Hotforex provides leverage of up to 100:1 on CFD trades.
- Lot size: Unlike traditional investments, CFDs allow both small and large players to participate in the price movements of an asset. A standard lot for gold is 100 ounces for example, but mini and micro lots are also available, which means 10 ounces or 1 ounce respectively can be traded. Oil and stock market indexes can only be traded in standard lots. Be sure to check the specifications of the product before trading.
- Rollover: Similar to forex trading, there is a "rollover" credited or debited from your account at the end of each day for as long as the position is held. To see current rollover charges, check out the corresponding CFD specifications page on the HotForex website.
- Expiry: Just like the underlying futures contracts, CFDs expire. If you have a position in a CFD when it expires, the position will be closed and your profit or loss will be realized. All orders associated with that position will also be canceled. If you wish to re-establish a position you can do so the following day with the new CFD contract.
- Trading hours vary by the CFD being traded. Below are the trading times for Gold (XAU), silver (XAG) and oil. All times are in GMT.
Figure 1: The trading times of stock indexes vary by the country in which the index is based.
How To Trade CFDs With HotForex: Placing An Order
|Figure 2: Another example of how trading times of stock indexes vary by the country in which the index is based.