For those wishing to venture outside the wonderful world of spot forex, CFDs could be an option. The name CFD stands for ‘contract for difference’. Basically, this is an agreement between two parties to exchange the difference between the opening and closing price of the market you’re trading. It is also important to note that CFDs are derivatives, which means that you do not own the underlying asset you’re trading.
On the whole, CFDs can be traded on various markets, such as: individual shares, indices, currencies and commodities. Indices are the most popular form of CFDs. IC Markets has a large range of global Indices to choose from, including the Australian S&P 200 Index, UK FTSE 100 Index and US DJIA Index.
Without Question, our competitive commissions, tight spreads and margins are some of the lowest in the market. Please feel free to check out the market specifications below:
Similar to spot forex, CFDs are traded on margin. Margin is essentially a good-faith deposit that’s required by the brokers in order to open and maintain trading positions. Furthermore, it also ensures that the trader has sufficient funds in the account. The deposit is considered margin which is required in order to use leverage! To put it simply, when a trader executes a trade, a portion of their account is put on hold. In addition to this, one must also take into account that as position size increases so will the margin requirement. IC Markets offer very reasonable margin rates as low as 0.5% on most global stock indices.
It also may be worth noting that stock indices and commodities are quoted in their base currency. What this means is that the UK FTSE 100, for example, would be quoted in GBP, and the US DJIA would be quoted in US dollars.
For the purposes of this example, let’s assume that the AUS200 index is oversold and a trader wishes to buy this unit.
The trader goes ahead a buys five contracts at 4951.00. So, in this example the point value equals $5. In the event that price moves in our trader’s favour and rallies to the set take-profit target at 4990.00/4991.00, the outcome of this trade would have ended in a 39-point gain:
However, to calculate the net profit, one must include any financing or dividend adjustments. Financing adjustments are applied to Indices daily. In the case of a buy trade, interest is debited to the trader’s account. Conversely, regarding a sell trade, interest is credited. Dividend adjustments are also applied whenever a stock in the relevant index goes ex-dividend.
IC Markets is revolutionizing on-line forex trading; on-line traders are now able to gain access to pricing and liquidity previously only available to investment banks and high net worth individuals.