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NDQ100: Thoughts and analysisToday's focus: NDX100 Nasdaq Pattern – Higher lower support point (LH Inc) Support – 15,320 - 14,690 Resistance – 15,520 – 15,822 Thanks for checking out today's update. Today, we have run over the NDX100 on the daily chart. We have started with the overall picture and worked our way into the current short-term perspective with things we are watching and levels we view as important. Over the subsequent few sessions, we feel that 15,520 support is key for buyers, and we would like to see them not only hold that area but form a rally that can retest 15,320 resistance. A break could get the short-term trend back up and running, but a good close below that support level could suggest the up trend could be in danger, and we may even see a new move back down to test 14,690 if sellers can really get going. Have a great day and good trading.
N
by Eightcap
EUR/USD pair stalled going into EU inflation dataAfter surging close to 4% since early July off the back of a weakening USD, the EUR/USD pair has stabilised around $1.123. With very little volatility seen this week in the pair, eyes now turn to the euro, as the European inflation data is set to be released tonight. Analysts are predicting a continued downward trend in inflation, with a Year-on-Year forecast of 5.50%, which is below May’s figure of 6.1%. If the inflation data comes in above forecasts, we may see a further increase in the EUR as investors move towards the potentially higher yields. On the technical front, the tightening of Bollinger Bands on the 4-hour chart is something to watch. The lack of movement in the EUR/USD pair throughout this week has led to exceptionally tight Bollinger Bands, with levels not observed on this timeframe since 2021. When Bollinger Bands contract significantly, it typically signifies a period of low volatility and suggests that a breakout or significant price movement may be on the horizon. The Relative Strength Index (RSI) is also in overbought territory on multiple timeframes, including the daily. This might suggest there is room for a cool-off before a further continuation higher. However, with the European inflation data due tonight, the fundamental data might cancel out any technical signals.
Short
by Ryanboyd
Gold: Can buyers hit a new leg higher? Today's focus: Pattern – Continuation Possible targets – 1978.50 Support – 1952.70 Resistance – 1965.55 Hi traders, and welcome to today’s update. After buyers held support on Monday, gold looks to be edging at new continuation in its current stage 1. Signs continue to favour buyers after they broke out of the medium-term downtrend last week. We want to see price beat resistance and hold support or, at a minimum, the moving average to a new uptrend for the last leg higher to remain valid. US retail sales data is due out today and could have an impact on the USD and Gold. Have a great day and good trading.
EIGHTCAP:XAUUSDLong
by Eightcap
Oil: Sellers setting up for further downside? Today's focus: Oil Pattern – 1st leg Pull back Possible targets – 72.75 Support – Resistance – After Friday’s strong move lower, could we see further selling before oil stabilises after last week’s firm rally back to the $80 Handel? That’s the question I am asking in today’s video, and if we do see further selling, we will also be looking for signs that buyers are looking to form a new continuation higher, maintaining the first leg break out. Have a great day and good trading.
EIGHTCAP:USOUSDShort
by Eightcap
Gold: Price levels and price analysis Gold: Price levels and price analysis Today's focus: Gold Pattern – Trend break Possible targets - 1965 Support – 1905 Resistance – 1932.80 As the USD continues its decline since last Friday’s employment data, our attention has turned to Gold as buyers continue to hold outside the downtrend. Price still sits in a range, but for now, the momentum looks to be with buyers as they continue to push a higher move so far today. This week’s CPI and PPI data will be a factor, but if we see it drop this could be the factor that gets gold buyers moving if the USD decline accelerates. For us, the core figure will be the important one as it’s been the most stubborn. If we see the core and m/m and y/y drop this week, could this be enough to see gold its range and get a more prolonged up trend back in play? Have a great day and good trading.
EIGHTCAP:XAUUSDLong
by Eightcap
Mastering CFD Trading: A Comprehensive Beginner's GuideContracts for Difference (CFDs) have garnered significant attention as derivative products that offer traders the ability to speculate on the price movements of various assets without the need to own them physically. These financial instruments emerged in the latter part of the 20th century, propelled by the advent of the internet revolution, which revolutionized trading by facilitating swift and convenient short-term transactions. CFDs have since become an integral part of the repertoire offered by prominent brokers, providing traders with enhanced leverage and access to an extensive range of markets that encompass stocks, indices, currencies, and commodities. This broad market coverage has contributed to the popularity and widespread adoption of CFDs among traders seeking diverse investment opportunities. The historical roots of CFDs can be traced back to the late 1980s and early 1990s. It was during this period that derivative trading witnessed significant advancements, driven by technological progress and regulatory changes. The introduction of electronic trading platforms and the availability of real-time market data allowed traders to execute trades swiftly and efficiently, leading to the development of CFDs as a viable financial instrument. The operational mechanics of CFDs are relatively straightforward. When trading a CFD, the trader enters into a contract with a broker, mirroring the price movements of the underlying asset. This contract stipulates that the trader will pay or receive the difference in price between the opening and closing positions of the CFD. If the price of the underlying asset moves in the trader's favor, they stand to make a profit. Conversely, if the price moves against their position, they may incur a loss. One of the key advantages of trading CFDs is the ability to utilize leverage. Leverage allows traders to control a larger position in the market with a smaller initial investment. This amplifies potential gains, but it is important to note that it also magnifies potential losses. Traders should exercise caution and employ risk management strategies when using leverage in CFD trading. Furthermore, CFDs offer traders the flexibility to profit from both rising and falling markets. Through a process known as short-selling, traders can speculate on price declines and potentially profit from downward market movements. This ability to take both long and short positions provides traders with opportunities to capitalize on market trends and volatility. However, it is crucial to acknowledge that CFD trading carries inherent risks. Due to the leverage involved, losses can exceed the initial investment, potentially resulting in significant financial losses. Moreover, CFD trading is subject to market volatility, and sudden price movements can lead to rapid and substantial losses. Throughout this comprehensive article , we shall delve into the historical backdrop of CFDs, elucidate their operational mechanics, and present an evaluation of the advantages and disadvantages associated with trading these financial instruments. History Of CFD: Towards the conclusion of the 20th century, the landscape of exchange trading underwent a profound transformation, thanks to the advent of the Internet. This revolutionary technology empowered traders to engage in rapid short-term trades with unparalleled ease. Consequently, intraday trading emerged as a prominent trend, and astute brokers swiftly recognized the burgeoning demand for this segment among individual traders. However, a significant predicament persisted within the trading realm - exchanges were highly specialized and compartmentalized. Currency exchanges, stock exchanges, and futures exchanges operated as distinct entities, precluding traders from capitalizing on opportunities across multiple asset classes. For instance, a trader operating with a currency broker lacked the means to profit from futures or stocks. While opening multiple accounts with different companies was a possible solution, it was far from optimal. Furthermore, another obstacle loomed large: high leverage was imperative for generating profits through short-term transactions, yet traditional stock exchanges were averse to the risks associated with margin trading. In response to these challenges, visionaries at UBS Investment Bank conceptualized a new trading instrument known as the contract for difference (CFD). This innovative derivative allowed traders to profit from the price fluctuations of various assets without the need to physically own them or conduct transactions on the underlying exchanges. Traders could now conveniently engage in trading shares, oil, and other commodities using a single broker. Additionally, CFDs provided the desired leverage for short-term trading, overcoming the limitations imposed by traditional stock exchanges. Over time, CFDs became widely available, offered by popular brokers operating in diverse markets, including the forex market. Presently, this versatile financial instrument is successfully utilized by both short-term traders and long-term investors, catering to a broad spectrum of trading styles and planning horizons. The flexibility and accessibility of CFDs have made them an indispensable tool in the arsenal of market participants seeking to capitalize on price movements and maximize their trading potential. CFD Leverage Explained: One of the notable features of CFD trading is the availability of margin trading, which enables traders to borrow funds from their brokers. This concept is closely tied to the notion of leverage, which has a significant impact on the trading process. Leverage allows traders to control larger positions in the market with a smaller amount of their own capital. To illustrate the concept, let's consider an example. Suppose a trader utilizes a 1:50 leverage. This means that with just $1,000 of their own funds, they can open a position equivalent to $50,000. In this scenario, the borrowed funds provided by the broker amplify the trader's purchasing power, enabling them to access larger market positions. The level of leverage available in CFD trading varies depending on the underlying asset being traded. For instance, when trading shares, the leverage typically ranges up to 1:20. On the other hand, for commodities like oil, leverage can often reach as high as 1:100. It is important to note that when comparing leverage in CFD trading to leverage in forex currency pairs, the ratios may appear different. A 1:20 leverage in CFDs might seem relatively lower when contrasted with the leverage commonly available in forex trading. However, it is crucial to consider these ratios within the context of their respective markets. In traditional stock markets, equity leverage is typically limited and rarely exceeds 1:2. This means that traders in those markets have less flexibility in terms of controlling larger positions with a smaller amount of capital. In contrast, CFDs provide traders with significantly higher leverage, allowing them to amplify their potential gains and losses. It is important to approach leverage in CFD trading with caution and exercise risk management strategies. While leverage can magnify profits, it also amplifies potential losses. Traders should be mindful of the increased risk associated with higher leverage levels and consider their risk tolerance and trading strategies accordingly. Comparing leverage ratios across different markets provides insights into the varying degrees of flexibility and risk exposure available to traders. Understanding and utilizing leverage effectively is an essential aspect of CFD trading, enabling traders to optimize their trading strategies and potentially enhance their profitability, while remaining cognizant of the associated risks. How CFDs Work: Let's break down the scenario provided to understand the implications of trading CFDs compared to traditional stock ownership. Assuming the Ask price per share is $171.23, a trader purchasing 100 shares would need to consider additional costs such as commissions and fees. In a traditional brokerage account with a 50% credit on margin, this transaction would require a minimum of $1,263 in available funds. However, with CFD brokers, the margin requirements are typically much lower. In the past, a 5% margin was common, which would amount to $126.30 for this trade. When opening a CFD position, the trader will immediately experience a loss equal to the size of the spread at the time of the trade. For example, if the spread is 5 cents, the stock price must rise by 5 cents for the position to reach the breakeven level. If the trader owned the stock directly, they would make a 5 cents profit. However, it's important to consider that owning the stock directly would entail paying a commission, resulting in higher overall costs. Now, let's consider the scenario where the offer price of the stock reaches $25.76. In a traditional brokerage account, positions could be closed at a profit of $50, resulting in a 3.95% return on the initial investment of $1,263. However, in the case of CFDs, when the price reaches the same level on the national exchange, the bid price on the CFD may be slightly lower, let's say $25.74. Consequently, the profit from trading CFDs would be lower since the trader must exit the trade at the bid price. Additionally, the spread in CFD trading is typically wider compared to regular markets. In this example, the CFD trader would earn approximately $48, resulting in a 38% return on the initial investment of $126.30. It's worth noting that these figures are specific to the example provided and may vary depending on various factors, including the specific brokerage, market conditions, and the pricing dynamics of the underlying asset. Why Trade CFDs / Pros And Cons Of Trading CFDs Indeed, one of the significant advantages of trading CFDs is the expanded range of tradable instruments compared to the classical forex market. While the forex market primarily deals with currencies, CFDs provide traders with the opportunity to trade a wide array of assets. Most brokers now offer CFDs on various instruments such as gold, stocks, and stock indices, greatly diversifying the available trading opportunities. However, it is important to note that CFDs are not a direct replacement for the underlying assets. Although the price of a CFD contract reflects the price movements of the underlying instrument, there may be differences in the actual returns. These differences can be attributed to factors such as spreads, commissions, and other costs associated with CFD trading. Speaking of commissions, it is crucial to consider that CFD commissions may differ from those applied to the underlying asset. This distinction becomes particularly relevant in longer-term trading scenarios. Traders need to carefully evaluate the commission structure and any associated fees when assessing the overall costs of trading CFDs. Now let's delve into the main advantages and disadvantages of trading CFDs: Pros of CFD Trading: 1 ) Expanded Market Access: CFDs provide access to a wide range of markets, including stocks, commodities, indices, and more, allowing traders to diversify their portfolios and capitalize on various asset classes. 2 ) Leverage and Margin Trading: CFDs offer the potential for higher leverage, allowing traders to control larger positions with a smaller initial investment. This amplifies potential profits (as well as losses) and can enhance trading opportunities. 3 ) Ability to Profit from Both Rising and Falling Markets: CFDs enable traders to take advantage of both upward and downward price movements. Through short-selling, traders can speculate on price declines and potentially profit from falling markets. Cons of CFD Trading: 1 ) Counterparty Risk: When trading CFDs, traders are exposed to counterparty risk, as they enter into contracts with the broker rather than owning the underlying assets. If the broker encounters financial difficulties or fails, it can impact the trader's positions and funds. 2 ) Potential for Higher Costs: CFD trading may involve additional costs such as spreads, commissions, and overnight financing charges. These costs can impact overall profitability, especially for longer-term trades. 3 ) Market Volatility and Risk: CFDs are subject to market volatility, and sudden price movements can result in rapid and substantial losses. The use of leverage in CFD trading can amplify both gains and losses, making risk management crucial. It is essential for traders to consider these pros and cons when deciding to engage in CFD trading. Adequate risk management strategies and a thorough understanding of the underlying markets and associated costs are essential for successful and informed trading decisions. Risks Of Trading CFDs: Trading CFDs (Contracts for Difference) involves inherent risks that traders should be aware of before engaging in such activities. Understanding these risks is essential for making informed decisions and implementing appropriate risk management strategies. Here are some of the key risks associated with CFD trading: Leverage Risk: CFDs allow traders to access larger market positions with a smaller initial investment. While leverage can amplify potential profits, it also magnifies losses. Traders need to be cautious and manage leverage effectively to avoid significant financial setbacks. Market Risk: CFDs are directly linked to the price movements of underlying assets, which can be influenced by various factors, including economic indicators, news events, and market sentiment. Rapid price fluctuations can lead to substantial losses, especially if positions are not managed appropriately. Counterparty Risk: When trading CFDs, traders enter into a contractual agreement with the CFD provider. This exposes them to counterparty risk, which refers to the possibility of the provider failing to fulfill its obligations. It is crucial to choose a reputable and regulated CFD provider to minimize this risk. Operational Risk: CFD trading platforms can experience technical issues, such as system outages or errors, which may prevent traders from executing trades or managing positions effectively. Traders should be prepared for such operational risks and have contingency plans in place. Liquidity Risk: In certain cases, CFD markets may lack sufficient liquidity, meaning there is a limited number of buyers and sellers. This can make it challenging to enter or exit positions at desired prices, particularly during volatile market conditions. Traders should be cautious when trading illiquid CFD markets. Hidden Costs: Some CFD brokers may impose additional fees and charges, such as overnight financing fees or spread mark-ups. These hidden costs can reduce profitability over time, and traders should carefully review the fee structure of their chosen CFD provider. To mitigate these risks, traders are advised to implement risk management techniques, including setting stop-loss orders to limit potential losses, conducting thorough market analysis, and continuously monitoring positions. It is also crucial to conduct due diligence when selecting a CFD provider, ensuring they are regulated and offer transparent pricing structures and reliable customer support. By understanding and effectively managing these risks, traders can enhance their chances of success and navigate the complexities of CFD trading more confidently. Choosing A Broker For CFD Trading: When selecting a broker for CFD trading, certain parameters take precedence. These include: 1 ) Reliability and Reputation: When it comes to CFD trading, the importance of a broker's reliability and reputation cannot be overstated. Given the instrument's relative lack of popularity, there may be instances of limited liquidity, which increases the temptation for unethical practices such as manipulating charts or altering quotes. It is crucial to choose a broker known for their trustworthiness and positive reputation. 2 ) Variety of CFDs for Trading: It is advisable to thoroughly examine the broker's website and review the comprehensive list of available contracts. Ensure that the list includes the specific CFDs you intend to trade. Having access to a wide range of CFD options allows you to diversify your portfolio and pursue various trading opportunities. 3 ) Contract Specifications: Identify the CFDs in the broker's list that you plan to trade frequently. Pay attention to the contract specifications, including spreads, commissions, and swaps, as they should align with your trading style and objectives. If you require high leverage, verify the leverage availability for each CFD category. By carefully considering these parameters, you can make an informed decision when choosing a broker for CFD trading. This will contribute to a more satisfactory trading experience and help you align your trading strategy with your goals. Conclusion: Contracts for Difference (CFDs) provide traders with a gateway to a diverse range of popular exchange-traded assets. Through a single CFD broker, traders can engage in trading activities involving stocks, indices, and even cryptocurrencies. The key to achieving success in CFD trading lies in the trader's level of proficiency in understanding the intricacies of specific instruments. The most favorable outcomes are typically attained by individuals who concentrate their efforts on a particular asset class or even a specific instrument within that class. By acquiring comprehensive knowledge and a deep understanding of the various factors that influence prices, traders can surpass market performance and reap the rewards they rightfully deserve. This focused approach enhances their ability to make informed decisions, seize profitable opportunities, and maximize their potential gains in the CFD market.
COINBASE:BTCUSDEducation
by FOREXN1
12
USD buyers ready to test resistance again?Today's focus: USD Index Pattern – Continuation Possible targets – 105.60 Support – 103.40 Resistance – 104.20 Today’s update is on the USD index. Do we have a new uptrend? For us, we want to see resistance beaten. If we can see a break, this could set up a new move to 105.60 and a break of that level take price out of its consolidation range and gets an uptrend going. For now, we have a short-term up trend, but buyers have more work to do to confirm it overall. If we see a new retracement, we want to see support hold. A move back to 102.70 is a worry if you’re on the short-term bull side. With momentum back in the buyer’s court, will we see a break of resistance? Thanks for stopping by. Good trading, and have a great day.
Editors' picks
EIGHTCAP:USDXLong
by Eightcap
10
US30 Analysis, can support hold for buyers?Today's focus: US30 Pattern – Support point, descending triangle. Possible targets – Downside 31,840 Upside 31,160 Support – 33,033 Resistance – 33,705 Thanks for checking out today’s update. Today’s analysis is over the US30 daily as price sits around support in a descending triangle pattern. Yesterday price broke lower after buyers failed to beat Monday’s high. The debt ceiling issue continues to look like the key issue, with price reacting negatively after no ground was made on Tuesday. This could continue to drive momentum, and bad news could equal downside risk, while a deal could give buyers plenty of drive. This week’s meeting minutes are another factor; traders will be looking for more clues on rates and how the Fed is seeing inflation atm. We are also hoping to hear more about how the banking issues are factoring into the Fed’s view. Thanks for stopping by. Good trading, and have a great day.
U
by Eightcap
CFD Update: GER30 set for a breakout?Today's focus GER30 Pattern – Range – diagonal consolidation pattern Possible targets – Upside, 15,985 – 16,160; Downside, 15,718 – 15,530 Support – 15,740 Resistance – 15,965 Hi, and thanks for looking at today's update. Our focus is on the GER30 as price sits in a range but has also formed a wedge/diagonal pattern that could signify movement to come. It's an interesting set-up as even if we see a break of the pattern price still has the range to contend with. US futures are lower, and we are seeing the GER30 lower at this stage, so could we see a move lower today? If so, sellers will need to break support to get a breakout really going. On the other hand, buyers will need to do the same to resistance to get their move going. US Retail Sales could play a part. It’s due today at 10:30 pm AEST (8:30 am EST) Thanks for stopping by. Good trading, and have a great day.
G
by Eightcap
CFD Analysis: Gold holding at support?Today's focus Gold Pattern – support hold Possible targets – 2035 Support – 2007 Resistance –2016.50 (4H) 2034.50 - 2050 Hi traders. Thanks for checking out our latest update. Today we are looking at Gold and running over a few of the points we are watching price-wise that could suggest a new move higher. Price Is trying to clear some 4H resistance and has re-held off 207 support. If we do see a break higher, could we see a new test of 2034.50/2035 resistance? Thanks for stopping by. Good trading, and have a great day.
EIGHTCAP:XAUUSDLong
by Eightcap
US30 starting to stall at resistance. Hi traders, this is just a general observation, not a trade idea. Tonight we noticed that the US30 has started to fade at a previous level of resistance. With the Core PCE to come, could an expected jump to the upside add to the small seller momentum we are starting to see? This week we have seen some decent buying so far, but could today’s action be a small hint at profit-taking starting to come in? If we see new buyer demand appear and price makes a new high today, then this idea could be canceled. If we do see a pullback today and it remains at or above the trendline and moving average, this could set up a possible buy idea next week if buyer momentum continues. Have a great weekend and good trading.
UShort
by Eightcap
Gold: Is support starting to form? Happy Friday, traders and TradingView community. Today we are looking at Gold from a technical perspective on the short term as buyers continue to push off a support area and from a potential demand zone. Price, for now, has continued to see demand from 1820.90, and sellers have failed on two attempts to break through. This level also sits in a possible supply zone that corresponds to the bar on the 21st of December, 2022. A supply zone can point out an area that can form support and lead to a reversal. I’m by no means an expert on supply and demand zones, so please be aware of that. What I like about this is the fact that two points have lined up in the same area. Price still remains in a downtrend, and the last few candles have seen failed attempts to hold close to their highs. These are counter bearish signs and need to be taken into consideration. From here, we want to see buyers hold today’s rally, and the higher the close, the better to tell us that buyer numbers are increasing. If we see a solid close today, that could be a sign that buyers are trying to regain control. A break of the trendline would be another solid sign. We need to see buyers hold 1820.90 support as if price closes below that level we could see a new bearish continuation. Another factor is the USD core PCE price index data will be released later today, and it is expected to come in at 0.4%, 0.1% higher than the last data. Inflation and rates continue to be a driver, and a miss or beat could impact the USD and Gold. The PCE will be released at 8:30 am EST. Have a great weekend and good trading.
EIGHTCAP:XAUUSD
by Eightcap
2
Oil sellers gearing up for a push lower? Are oil sellers gearing up for a push lower? Hi traders. Thanks for tuning in for today's update. After yesterday's fade, oil sellers remain in control today. Today's video looks at the last several day's price action with a focus on yesterday's and today's selling. Was yesterday's fade a warning that we could see a new test lower by sellers? The main trendline remains intact, and we have seen the fast-up trend broken and a new short-term downtrend start to form. Levels to watch: Resistance 74.90 Support 73.15 & 71.63 A close below 74.15 could set off a new push lower, but if we see a new higher close above resistance, this could be a warning that seller numbers are not that strong. Good trading, and happy Tuesday.
EIGHTCAP:USOUSDShort
by Eightcap
Gold starts 2023 with a new breakout. Welcome to 2023 traders. We hope everyone had a lovely holiday period. On the first trading day of the year, gold buyers are setting the tone with a new breakout and setting up a new trend continuation. Risk markets continue to trade mixed with some gains on stock futures while major risk currencies are trading lower to the USD and sharply lower to the Japanese Yen. Today's video analysis, we look at gold's price action so far today, its pattern break, and we look above to potential key resistance levels we are looking at. Will we see buyers continue to push today’s breakout? Could we see 1876 resistance tested in the future? Good trading, and happy 2023 to all.
EIGHTCAP:XAUUSDLong
by Eightcap
1
How Gearing Works with CFDs and Spread TradingThis is the most important concept you’ll need to understand to accelerate your account. During your trading experience, with gearing, you’ll learn how to multiply your profits. But you can also multiply your losses, if you don’t know what you’re doing. So listen up. What Gearing is in a nutshell… Gearing also known as leverage or margin trading, is the function that allows you to pay a small amount of money, in order to gain control and be exposed to a larger sum of money. There is a very simple calculation you’ll use calculate the gearing for both CFDs and Spread Trading. Exposure Initial margin In order to understand this formula, let’s use three gearing examples with shares versus CFDs and Spread Trading. We’ll break it up into three steps for CFDs and Spread Trading: 1. Calculate the entry market exposure 2. Calculate the initial margin (Deposit) 3. Calculate the gearing We’ll also exclude costs to help simplify the gearing concept better. EXAMPLE 1: Buying AAS Ltd shares Portfolio value: R100,000 Company: AAS Ltd Share price: R109.00 No. shares to buy: 100 If you buy one share at R109 per share, you’ll be exposed to R109 worth of one share. If you buy 100 shares at R109 per share, you’ll be exposed to R10,900 worth of shares (100 shares X R109 per share). We know that to be exposed to the full R10,900 worth of shares, we needed to pay an initial margin (deposit) of R10,900. If we plug in values into the gearing formula, we get. Gearing = (Exposure ÷ Initial Margin) = (R10,900 ÷ R10,900) = 1:1 This means, there is NO gearing or a gearing of 1 times, with the share example as, what we paid is exactly as what we are exposed to. Easy enough? Let’s move onto CFDs. EXAMPLE 2: Buying AAS Ltd CFDs Portfolio value: R100,000 CFD of the underlying Company: AAS Ltd CFD Share price: R109.00 Margin % per CFD: 10% (NOTE: Find out on your trading platform or ask your broker for the margin % per CFD) No. CFDs to buy: 100 Step #1: Calculate the entry exposure of the CFD Entry exposure = (Share price X No. CFDs) = (R109.00 X 100 CFDs) = R10,900 NOTE: 1 CFD per trade, you’ll be exposed to the value of one share. 100 CFDs per trade, you’ll be exposed to the value of 100 shares. Step #2: Calculate the initial margin of the CFD trade Initial margin = (Exposure X Margin % per CFD) = (R10,900 X 0.10) = R1,090 This means to buy 100 CFDs, you’ll need to pay an initial margin (deposit) of R1,090. Step #3: Calculate the gearing of the CFD trade Gearing = (Exposure ÷ Initial margin) = (R10,900 ÷ R1,090) = 10 times With a gearing of 10 times, this means two things… #1: For every one CFD you buy for R10.90 per CFD, you’ll be exposed to 10 times more or the value of one AAS Ltd share. #2: For every one cent the share price rises or falls, you’ll gain or lose 10 cents. EXAMPLE 2: Buying AAS Ltd CFDs Portfolio value: R100,000 Underlying Company: AAS Ltd Share price: 10,900c Value per point: 100c (R1.00) Margin % per Spread Trading contract: 7.50% (NOTE: Find out on your trading platform or ask your broker for the margin % per share contract) Step #1: Calculate the entry exposure of the spread trade Entry exposure = (Share price X Value per point) = (10,900c X 100c) = 1,090,000 (R10,900) Note: 1c value per point per spread trade– you’ll be exposed to one AAS share 100c value per point per spread trade – you’ll be exposed to 100 AAS shares Step #2: Calculate the initial margin of the spread trade Initial margin = (Exposure X Initial margin) = (1,090,000c X 0.075) = 81,750c (R817.50) This means, you’ll need to pay an initial margin (deposit) of R817.50 to be exposed to R10,900 worth of AAS Ltd shares. Step #3: Calculate the gearing of the spread trade Gearing = (Exposure ÷ Initial margin) = (1,090,000 ÷ 81,750c) = 13.33 times This means, by depositing R817.50 you’ll be exposed to 13.33 times more or R10,900 (R817.50 X 13.33 times) worth of AAS Ltd shares. You now know how gearing works with CFDs and Spread Trading, in the next lesson we’ll cover how to never risk more than 2% of your portfolio for each CFD and Spread Trade you take.
JSE:J200Education
by Timonrosso
EXPLAINED: CFDs versus Spread Trading 101What are CFDs and Spread Trading? Spread Trading (betting) and CFDs are financial instruments that allow us to do one thing. To place a bet on whether a market will go up or down in price – without owning the underlying asset. If we are correct, we stand a chance to make magnified profits and vice versa if wrong. Both CFDs and Spread Trading, allow us to buy or sell a huge variety of markets including: • Stocks • Currencies • Commodities • Crypto-currencies and • Indices. When you have chosen a market to trade, there are two types of CFD or Spread Trading positions you can take. You can buy (go long) a market at a lower price as you expect the price to go up where you’ll sell your position at a higher price for a profit. You can sell (go short) a market at a higher price as you expect the price to go down where you’ll buy your position at a lower price for a profit. EXPLAINED: CFDs for Dummies DEFINITION: A CFD is an unlisted over-the-counter financial derivative contract between two parties to exchange the price difference between the opening and closing price of the underlying asset. Let’s break that down into an easy-to-understand definition. EASIER DEFINITION: A CFD (Contract For Difference) is an: • Unlisted (You don’t trade through an exchange) • Over The Counter (Via a private dealer or market maker) • Financial derivative contract (Value from the underlying market) • Between two parties (The buyer and seller) to • Exchange the • Price difference (Of the opening and closing price) of the • Underlying asset (Instrument the CFD price is based on) EASIEST DEFINITION Essentially, you’ll enter into a CONTRACT at one price, close it at another price FOR a profit or a loss depending on the price DIFFERENCE (between your entry and exit). Moving onto Spread Trading. EXPLAINED: Spread Trading for Dummies DEFINITION: Spread Trading is a derivative method to place a trade with a chosen bet size per point on the movement of a market’s price. EASIER DEFINITION: Spread Trading is a: Derivative method (Exposed to an underlying asset) to Place a trade (Buy or sell) with a chosen Bet size per point on where you expect a Market price will Move (Up or down) In value EASIEST DEFINITION: Spread Betting allows you to place a BET size on where you expect a market to move in price. Each point the market moves against or for you, you’ll win or lose money based on their chosen TRADING bet size (a.k.a Risk per point or cent movement). The higher the bet size (value per point), the higher your risk and reward. The costs you WILL pay with Spread Trading and CFDs Both Spread Trading and CFDs are geared-based derivative financial instruments. As their values derive from an underlying asset, when you trade using Spread Trading or CFDs, you never actually own any of the assets. You’re just making a simple bet on whether you expect a market price to rise or fall in the future. If you decide to go with the broker or market maker who offers CFDs or Spread Trading, there are certain costs you’ll need to pay. Costs with Spread Trading With Spread Trading, you’ll only have one cost to pay – which are all included in – the spread. The spread is the price difference between the bid (buying price) and the offer (selling price). EXAMPLE: Let’s say you enter a trade and the bid and offer prices is 5,550c – 5,610c. The spread, in this case, is 60c (5,610c – 5,550c). This means your trade has to move 60c to cross the spread in order for you to be in the money-making territory. Also, if the trade goes against you, the spread will also add to your losses. Why the spread you ask? The spread is where the brokers (market makers’) make their money. Costs with CFDs Brokerage With CFDs, it can be different. Depending on who you choose to trade CFDs with, you may need to cover both the spread as well as the brokerage fees – when you trade. These brokerage fees can range from 0.2% – 0.60% for when you enter (leg in) and exit (leg out) a trade. NOTE: If the minimum brokerage per trade is R100, you’ll have to pay R100 to enter your trade. Daily Interest Finance Charge The other (negligible) cost, you’ll need to cover is the daily financing charges. If you buy (go long) a trade, you’ll have to pay this negligible charge (0.02% per day) to hold a trade overnight. However, if you sell (go short) a CFD trade, you’ll then receive this negligible amount (0.009%) to hold a short trade overnight. The costs you WON’T pay as a Spread Trader With spread trading (betting), you don’t own anything physical. When you take a spread bet, you’re simply making a financial bet on where you expect the price to move and nothing else. This means, there will be no costs to pay as you would with shares including: NO Daily Interest Finance charges NO Stamp Duty costs NO Capital Gains Tax NO Securities Transfer Tax NO Strate NO VAT NO Brokerage (all wrapped in the spread). The costs you WON’T pay as a CFD trader With CFDs, you’ll notice that there are similar costs with Spread Trading that you won’t have to pay including: NO Stamp Duty costs NO Securities Transfer Tax NO Settlement and clearing fees NO VAT NO Strate 24-Hour Dealings The great thing about Spread Betting or CFD trading is that, you can trade markets trade 24/5. I’m talking about currencies, commodities and indices. And with Crypto-currencies you can trade them 24 hours a day seven days a week. I have left out a very important difference between CFDs and Spread Trading… Gearing and how it works in real life…
JSE:J200Education
by Timonrosso
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