CFD Education

CFD Education

CFD Education covers all you need to know about trading Indices and Commodities. CFDs include such popular commodities as Oil and Gold, and Major Indices such as Dow Jones.

CFD TRADING

CFD (Contracts for Difference) offers leveraged long/short trading on almost every financial instrument. It is a simple and inexpensive trading option to trade the change of price in multiple commodity and equity markets, with leverage and immediate execution.

LDC offers a wide range of CFDs giving you access to commodity markets - such as Oil, Agriculture and Precious Metals - and worldwide equity markets indices - such as FTSE 100, Dow Jones 30, S&P; 500 and Hong Kong Hang Seng Index.

WHY TRADE CFDS?
  • Product Diversity: LDC offers CFD trading on the world’s leading stock indices, as well as on Oil, Gold and other Commodities. Such a diverse array of products allows you to easily gain exposure to different markets and profit from multiple types of trading conditions.
  • Low Margin Requirements: At LDC you are able to trade CFDs with margins between 1% - 2% (which means leverage of up to 100:1). This enables you to take gain bigger positions than you would be able to if you bought the actual underlying asset.
  • High Liquidity: All LDC CFDs offer competitive spreads with bid/ask quotes that are filled on the spot – without delay.
  • Lot Size: CFD trading enables you to trade in small and odd size lots. Normally, this is not possible when dealing with the underlying asset itself.
  • No Commission: LDC offers commission-free CFD trading. Furthermore, LDC offers free intra-day trading – positions that are opened and closed on the same day incur no costs whatsoever.
  • Ability to trade "Long" or "Short": With CFD Trading, you can profit no matter which way the market moves. You can use CFD to go “short” (when you believe markets will fall) as easily as to go "long" (when you expect prices to be on the rise).

How Does a CFD Work?

MARGIN

CFDs are dealt on a margin basis and you secure the transaction by paying a deposit. This means that when you open a position, you do not have to pay for its full value. Instead, you put up a deposit from 1% to 2% (depending on the contract’s margin requirement), which enables you to trade up to 100 times your initial capital (leverage of up to 100:1).

You are required to keep funds in your account to cover the transaction amount of each CFD and any associated costs if the price moves unfavorably. The margin requirement must be maintained to keep your position open. Should the equity value of the account drop below the minimum margin requirement, additional funds must be added.

TRADING AND PRICING

CFDs are traded in units that vary depending on the CFD itself. For example:

  • Oil is traded in barrels (bbl)
  • Wheat is traded in bushels (bu)
  • Coffee is traded in pounds (lb)

All units are set to a standardized quantity known as a “lot”. A lot represents the minimum quantity, which can be traded in any given instrument.

CFDs are quoted as seen in the underlying market. So for example, stock indices and commodities are quoted and traded in their base currency. The FTSE100 CFD is quoted in Pounds and the S&P500; in Dollars.

OVERNIGHT INTEREST ADJUSTMENTS

When you leave a CFD position opened overnight, you pay or receive daily interest adjustments depending on whether you have a long or a short position. These adjustments represent the financing fees for Markets.com to maintain your position opened.

The Markets.com Financing Charge is 1.5% and overnight interest adjustments are calculated in accordance with the following formula:

Overnight rollover = (Interest Rate Differential – Financing Charge)/36000 x Base Value x Units per Lot x Relevant Exchange Rate.

EXPIRATION OF UNDERLYING INSTRUMENT (ROLL OVERS)

Unless otherwise specified, the underlying instrument of a CFD has an expiration date. However, you should be aware that CFDs are not traded up until the exact expiration date of the underlying instrument. Instead, CFDs are rolled over to the next underlying Future Price during the last weekend (before the official expiration day). This is known as the expiration rollover.

If there would be any substantial price difference between the two Futures, an adjustment will be Credited or Debited from the balance of your account subject to the open position amount of the expiring CFD. This Adjustment will show up in your account under Rollover Charge and will not affect the real value of your Equity.

However, you should be aware that the switch between the two Future prices of the underlying CFD could involve a substantial price difference. Therefore, Entry Orders might be filled on Market rates rather then on the predefined rates.

If you do not want to incur the price adjustment or any implication of the underlying CFD rollover, you can close your position(s) and/or cancel Orders before the rollover date and open a new position afterwards. Markets.com, at its best effort, will inform customers about any projected expiration of instruments by Popup, email, or through the site.