Forex Copy Trading: Advantages & Disadvantages
Copy trading in forex refers to a mechanism that links a client’s trading account with the account of a professional trader after which all the movements of the latter’s account are simultaneously copied into the client’s account. There are numerous platforms which offer copy trading services to their clients.
Is Forex Copy Trading Legal?
Forex copy trading is legal in most countries. You have to choose a trading platform that itself is regulated and offer forex copy trading services. If the broker is regulated and registered under the national trading authority or board of the country, the services provided by it are automatically considered legal.
How Does Forex Copy Trading Work?
Through forex copy trading, a client can link a portion of their account to the portfolio of an experienced trader of their choosing. All of the experienced trader’s open transactions are copied to the client’s account once they have enabled the copy trading feature. All future actions taken by the host are also instantly replicated to the client’s account.
Depending on the trading platform, the client may have varying degrees of influence after they start imitating a trader. Some copy trading platforms have a fixed system whereby all activities done by the experienced trader are duplicated into the client’s account, with the client’s only option being to figuratively cease copying the actions. There isn’t any middle ground like picking a capital, or opting to exit from the trade before the experienced trader closes the trade.
On the other hand, some platforms are liberal enough to grant the copy trader access and rights of choosing the capital for trading, or leverage, or even choosing manually when to stop the trade even before the experienced trader does it.
Advantages of Copy Trading
For those who desire access to the forex market but lack the time and resources to study how to trade, copy trading is their saviour! Traders who want to trade in multiple markets can opt for copy trading as well. Not only does this method help in adding diversification to their portfolios, but traders also increase their earning potential.
Disadvantages of Copy Trading
Copy trading from an experienced trader does not mean that there will be no losses and the copy trader will always be on a winning streak. Even an experienced trader faces losses. Risks are always involved in the forex market because no one can predict the market 100% accurately.
For a novice trader, copy trading is the ideal place to start. It enables a novice trader to immediately benefit from the knowledge of an experienced trader. Copying a skilled trader does not, however, imply that copy trading is risk-free. Hence, a copier should exercise extreme caution when selecting the trading platform and experienced traders to copy.
Best Day Trading Brokers
The forex market is a breeding ground of millions of retail traders around the world, along with Central Banks, Government authorities, and international business firms. Trading in the forex market is not an easy task. It requires careful market analysis, and strategy formation. One of the most common types of method of trading forex is Day Trading. Forex day trading is a strategy where a trader purchases and sells a currency pair in a single trading day. The idea is to capitalise on minute changes in the market, with trades lasting anything from a few minutes to a few hours. This article covers how a trader can choose the best brokers for day trading.
Who Is A Forex Broker?
The foreign exchange market is an online global market that can be accessible to retail traders only through the platform provided by forex brokers. Independent access to the foreign currency market is not intended for dealers, especially retail traders. To connect these dealers to the financial market, a middleman is required. Brokers—companies that provide financial services—are the intermediates in this situation.
How To Select The Best Day Trading Broker?
Now that you know why we need a forex broker, it’s time we understand what we should look for in a forex broker.
The firm’s regulation status is a crucial factor to take into account when selecting a forex broker. Each nation has a separate regulatory body. Regulations typically have a number associated with them. For instance, a regulated broker in the US needs to be registered with the National Futures Association.
If you look at the “About Us” section of a broker’s website, you will see that they either listed their registration number or the name of the organisation with which they are registered. If not, don’t put your faith in that broker. A regulated broker is a crucial step to taking advantage of a secure trading environment where the trader need not worry about the security of their money or personal information.
Required Tools and Features
Different account options are offered by each forex broker. A trader must take into account the following elements of brokers in addition to the special benefits each one offers: initial deposit requirements, commissions and spread, leverage and account margin, and simplicity of deposits and withdrawals.
Initial Deposit Requirements
Standard, mini, and micro accounts are available from many brokers, and the minimum initial deposit requirements vary. Select a broker and account type that are appropriate for your current financial situation, including your risk tolerance.
Commissions and Spreads
The spread is a currency pair’s price discrepancy between the ask and bid prices. While many brokers don’t charge commissions, they display bigger spreads. On the other hand, other brokers provide set commissions and tight spreads. Do thorough research, then shortlist the brokers you believe to be the best.
Leverage and Account Margin
Participants in forex trading may have access to leverage made available in their account, depending on the broker. Some brokers provide high leverage of up to 500:1 or more. But you should exercise caution. Leverage, however, can swiftly wipe out a trader’s account because it increases the likelihood of losses.
Deposits and Withdrawals
Each forex broker has unique funding and account withdrawal rules. Due to the fact that different brokers accept various transaction methods, the depositing and withdrawing process can change from broker to broker. For either service, the broker may also charge a fee. A trader must conduct thorough study to determine which broker’s terms and conditions best suit their preferences.
Customers are important, yet many business owners overlook this. Since forex trading is conducted around-the-clock, a broker’s customer support team should be accessible at all times. A competent broker should make sure that getting in touch with them is simple and easy. Also take into account if the customer service offers calling features.. Email and live chat services should be available as additional communication alternatives.
The forex broker you choose to trade with is one of the most crucial decisions you must make if you want to thrive in the forex market as a day trader. Although the broker choice may not be the main factor in traders’ losses in the forex market, it does have a significant impact on their trading experience. Before engaging in live trades, it is highly advised for new traders to practise on demo accounts. The use of demo accounts will help new traders become familiar with the brokers as well as the market.
How To Select An Oil Trading Broker?
Just like forex brokers, there are crude oil brokers that help you to observe the changes in oil prices and trade them. There are multiple oil brokers that can help one in oil trading. In this article, we will learn the basics of crude oil trading and tips for choosing a good oil broker.
Who Are Oil Brokers?
Oil Brokers are the intermediates for executing buying and selling of oils online. Like forex trading, in oil trading, the trading is done on the fluctuating prices of the oil. Various factors influence the cost of crude oil.The oil prices typically depends on 3 major factors:
- Economic Conditions
- Geopolitical Events
Oil brokers provide online oil trading services by closely observing the oil prices and the factors that influence them.
Insight Of Oil Brokers
There are rules and regulations for oil trading, and the regulatory bodies are from oil exporters: South Arabia, America, and Canada. In America, the SEC regulates oil trading, IIROC in Canada, and ESMA is for the EU. With all regulatory bodies and trading rules, there are less fraud cases in oil trading. Always, choose a regulated oil broker for oil trading that follows all rules, and is registered.
You can open an account for oil trading in any of the following three accounts:
- Micro Account: This is good for new traders. It allows minimum trading of less than $1000.
- Mini Account: This account allows a deposit of less than $10,000.
- Standard Account: it is a premium account with trading deposits of more than $10,000.
Oil trading mostly takes place in dollars. Some oil brokers also provide VIP trading accounts with additional benefits while other oil brokers deal only with a single trading account.
Oil trading uses two terminologies: Future and spot contracts for trading. The spot price is the current market price at which a particular asset, such as a currency or commodity, can be bought or sold for immediate delivery, while the futures price is the agreed-upon price at which the asset will be bought or sold at a later date.
Tips To Choose Oil Trader
Oil trading has fewer chances of loss, but choosing the right and genuine oil broker is a challenge for traders. Here are some handpicked tips for choosing the right broker for you.
- Choose a highly active and regulated broker.
- Check the authenticity of the oil broker and verify it with a proven history of records
- Check how the oil brokers operate. Do not forget to check trading conditions such as spreads and leverage.
- The commission of the oil broker is the turning point of any trading. Compare the trading commission with other charges of the oil broker as well other competitive brokers in the market.
- Thoroughly ask and check oil brokers or inspect if they have any hidden charges or not
Oil is a volatile asset and offers plenty of earning opportunities. Before selecting an oil broker, traders must focus on the oil commissions, spreads, leverage, and other charges.
Regulated Forex Brokers
The popularity of forex trading is increasing, and it is possible because of forex brokers that more and more people can access the forex market. Therefore, it is important to choose a reliable forex broker. In this article, we will discuss forex brokers and the importance of regulated forex brokers.
What Are Brokers?
When you trade in forex, forex brokers are a point of contact between you and the market. In essence, they act as your agent and handle all the trading on your behalf. You simply have to pay a small commission in return.
In accordance with your needs, a broker helps you connect with the right buyer or seller of currencies to smoothen out your trading process. If you use a forex broker, you can trade currency pairs from all over the world. Forex brokers also provide demo trading accounts as well. You can hone your skills with the help of a demo account without risking any real money. Additionally, you can develop, refine, and backtest various trading strategies in a demo account to avoid losses and get acquainted with the market.
Who Are Regulated Forex Brokers?
Choosing the best forex broker for your trading needs is not easy, given the abundance of brokers. When choosing your broker, you must be very deliberate and exact. You must first educate yourself on the various account types, spreads, commissions, and broker types.
Keep an eye out for regulated brokers with fair spreads, a demo account, and generally simple deposit and withdrawal procedures. Regulated brokers obtain an operating license after meeting the requirements set forth by the overseeing authority, such as risk management, infrastructure support, staff training, and financial stability, so they are trustworthy. Beginners should also check competitive swap rates in addition to spreads and commissions.
Additionally, you can read reviews of the particular broker on various websites that host reviews. Make a wise choice because a regulated forex broker will never defraud their clients and will always be consistent in the services they offer.
Why Is It Crucial To Pick Regulated Brokers?
It is crucial to pick regulated brokers because they process transactions more quickly and transparently. Proper regulation helps to ensure that your forex broker is adequately capitalized in the event of trading losses, upholds fair dealing practices to ensure that your trades are executed at the current market prices, and keeps your money in safe and segregated accounts.
Furthermore, you share a lot of personal data with your broker; hence, regulation aids in ensuring the security of your private data. Regulated Forex brokers are more trustworthy and will act in the best interests of their clients. They don’t manipulate the price or charge you any extra money apart from their service charges. Additionally, these days scams are highly prevalent in the forex market. This is why you need to find a reliable and regulated broker for yourself. There are several ways to assess a broker’s reliability, and it is always recommended that you do your own independent research on the broker rather than relying solely on the information provided on the broker’s website.
Overall, forex brokers provide trading services that let you engage in the forex market. Before choosing your best fit, take into account your trading needs, goals, and risk tolerance. Open a live account with a broker only after carefully weighing all the options, and take your time doing so. Beginners ought to seek out brokers with fair spreads and easy deposit and withdrawal procedures. Do not proceed until you are completely satisfied with the broker’s trading conditions and services. Also, don’t forget to check to see if the products and tools they offer are actually helpful to you. When you make the right use of the resources and trading services, the chances of success increase significantly.
How To Choose The Best Gold Trading Brokers?
Gold has always been every investor’s safety net. And it is a part of multiple portfolios as this asset helps traders diversify on a larger scale. The value of gold continues to shine and rise high in the markets. It is very liquid in nature and has great scope for bringing long-term profits. Hence, it is a preferred choice of many traders. Picking the right gold broker is necessary to safely secure & grow your capital. In this article, we discuss a few things that you need to keep in mind while selecting gold trading brokers.
A regulated gold broker must follow certain rules and regulations set by a regulatory body, which helps to protect you as a consumer. This includes ensuring that the broker is transparent in their business practices and is financially stable. Working with a regulated broker also gives you a way to file a complaint or seek compensation if you feel that you have been treated unfairly.
Gold Trading Platforms
Many traders trade gold on the MT4 trading platform – a versatile platform that comes with in-built tools and features that assist in trading. Traders get to choose from various tools and techniques to enhance their trading process. It is best to choose a gold broker that has this platform.
Gold Trading Accounts
Brokers that offer gold trading services typically offer three different accounts –
This account is the best option for new traders with a low deposit amount.
This is a standard account that most brokers recommend.
Platinum accounts are for advanced traders or those traders who frequently engage in gold trading. This account is used mostly by VIP clients who are in the higher scale budget-wise.
Traders can either buy physical bars or coins which are then stored safely in vaults. Although it comes at a fee, it is highly recommended and is a great way to safeguard a long term investment. Traders who wish to do ETF trading have no ownership of the gold per say, but they get hedging options.
Funding And Withdrawal
Payments should be hassle free which is why it is best to choose a broker that offers different payment methods. Online payments are much easier and quicker and have low transaction costs. In case of withdrawals, choose a broker that initiates instant payment release.
Commissions are the fees that gold brokers charge for their services. These fees can vary significantly from one broker to another, so it’s important to carefully consider the commissions being charged when choosing a gold broker. Some brokers charge a flat fee for each trade, while others charge a percentage of the value of the trade.
It’s a good idea to compare the commissions of several different brokers to make sure you are getting the best deal. In addition to the commission, you should also consider any other fees that the broker charges, such as storage or delivery fees.
This is something where you can’t compromise. A broker with impeccable customer service is a must for smoother trading. Ensure that your broker is available in the need of your time – whether it’s via phone call, email, online chat, etc. From small queries to technical glitches, traders can face many problems. If the broker doesn’t provide instant support, then you need to reconsider your options.
Even after decades, gold is still one of the best assets in the world. Trading gold is feasible and profitable if you have a gold broker that provides the best services. Above discussed are some important criteria that you must add in your checklist while choosing a gold broker.
How To Choose a South African Broker for Forex Trading?
Forex Trading is legal in South Africa and more than 50+ brokers are giving their services in the forex market. These brokers act as a middleman for buying and selling foreign currency pairs. But, choosing the right South African broken is like finding a needle in sand. In this article, you will learn about forex trading and how to choose a forex broker in South Africa.
What is Forex Trading?
Forex trading is buying and selling currencies in the forex market to make a profit. The forex market offers trading only in currency pairs like EUR/USD, GBP/USD, and USD/CAD. The prices of currency pairs fluctuate with time, and traders predict the value of the currency pair to accumulate profits.
You cannot directly start trading in the forex market, you will need a forex broker to help you in currency trading. Now, you must be wondering, what is this Forex Broker? A forex broker buys and sells currency on your behalf, or you can say a forex broker acts as a middleman in the forex exchange market.
Let’s Understand the Role of a Forex Broker With an Example:
If you want to study in South Africa, you need to pay all your fees in Rand. To convert your currency into South African currency, you will go to a bank that will pay an equal amount of your currency value to buy Rand. In this way, you are trading in the forex market by selling your home currency to buy Rand.
Forex trading is emerging as a profitable trading option, and customers are trading (buying and selling currencies) through forex brokers. But, with all the limelight, forex trading has several risks and challenges. If you are a new player in forex trading, you can learn the basics or work to improve your trading skills through a forex demo account.
Advantages of The Forex Market
- It provides 24×5 – Monday to Friday, services that work as per the different time zones.
- It provides high liquidity flow.
- You can start forex trading with low capital
Disadvantages of Forex Trading
- It is an extremely volatile market
- It requires years of experience and knowledge to become a successful trader.
How to Choose a Forex Broker in South Africa?
Forex Trading is legal for South African citizens, and the government has assigned a regulatory body called FSCA (Financial Sector Conduct Authority) to address legal issues of forex trading. To provide trading services to South Africans, forex brokers need to own an FSP licence. A forex broker can only apply for the FSP licence if it fulfils all its requirements and follows all guidelines. Thus, the number one feature to look for in a broker is regulation.
Here Are Other Features That You Need to Look for in a Forex Broker:
- Fees and commissions: A good broker should offer low commissions as well as low spreads. Check all the fees charged by your broker and compare them with other brokers in the market to find out the price differences.
- Trading platform: Choose a broker that offers a user-friendly and reliable trading platform. MT4 and MT5 trading platforms are two of the most widely used trading platforms.
- Customer support: Look for a broker that offers excellent customer support, including assistance with account opening, trading, and any other issues you may have.
- Educational resources: You can consider a broker that offers educational resources such as trading guides, webinars, and seminars to help you improve your trading skills.
Several best South African Brokers can help to participate in forex trading. Before shaking hands with any broker, thoroughly check its website, authenticity, and brand value.
What Are Islamic Forex Accounts?
Despite the widespread belief that trading is forbidden by Islam, it is still possible to do so. The trick is to open an Islamic Forex account. Those who adhere to the tenets of Islamic finance and the Quran can open an Islamic Forex account, which is a halal trading account, to trade in the foreign exchange market.
Islamic trading accounts also referred to as swap-free accounts, have a few key distinctions from standard Forex accounts. Islamic account holders neither pay nor receive interest, as this practice is forbidden by Sharia law. In addition, Islamic finance necessitates the immediate transfer of funds between accounts and the simultaneous payment of transaction fees. Some features that an Islamic forex trading account must have:
- When positions are left open overnight, neither party pays nor receives any swaps for the privilege.
- The spreads on Islamic trading accounts are typically wider than those on other types of accounts.
- When dealing with many brokers, traders are unable to trade certain emerging market currencies using Islamic trading accounts.
Due to the low demand and potential low profits, brokers often neglect to advertise this type of trading account. The accounts are managed in accordance with the tenets of Halal forex trading.
What is Halal Forex Trading?
Halal Forex Trading Adheres to the Four Fundamental Principles of Islamic Finance.
- Prohibition of payment and receipt of any interest rate or Riba
- Immediate exchanges in the context of trading operations
- Prohibition of gambling or Gharar
- Distribution of risks and benefits or Musharakah Arrangement
Due to the fact that these four tenets do not always mesh with the Western banking and trading tradition, special trading accounts have been developed to accommodate Islamic finance. These accounts are referred to as “Islamic accounts.” Clients who wish to engage in halal Forex trading can take advantage of these account options so that they do not have to compromise their religious beliefs in order to participate in the financial markets.
These accounts resemble standard trading accounts in many respects; however, they feature a few key differences that are in line with the tenets of Islamic finance.
How to Open an Islamic Forex Account?
It is possible that the broker will ask you to provide a few documents before allowing you to open an Islamic Forex account. These documents may include your identification as well as a document that serves as evidence of your faith.
An Islamic trading account is an initiative to bring Islamic Sharia law to the realm of foreign exchange trading. Therefore, it is for people who follow the teachings of the holy Quran or are Muslims by religion. The Sharia is a form of religious law that is prescribed by the Quran. It is known by its Arabic name, the Sharia, and it outlines specific guidelines for how people should behave in social settings. It covers a wide range of topics, from money and family to health and diet.
Trading on the foreign exchange market according to the principles of Islamic law is becoming more common in nations where it was previously illegal. The current market for foreign exchange is significant enough to rank among the most important financial markets in the world. Those Muslims who adhere to the principles of sharia law have the opportunity to engage in currency trading through the use of an Islamic forex trading account.
A Comprehensive Guide To Choosing A High Leverage Forex Broker
Leverage is one of the most appealing features because of which many traders are attracted to the forex market. The forex market offers high leverage that can help traders increase their expected profits. However, leverage is a double-edged sword and should be used carefully, or else a trader can lose heavily. Read More
What Is Leverage?
Leverage can be considered as a loan that is offered by the forex broker so that the trader can open a larger trading position with a relatively smaller amount of money. Trading using leverage can exponentially increase the potential profits, however, it can also increase the potential risks with the same intensity.
Leverage offered is represented by ratios. Traders can use leverage as per their preference and risk tolerance.
Margin And Leverage
Margin is the minimum amount of capital required to open and hold a trading position while trading with leverage. The trader is required to put a certain margin to use a particular leverage ratio. This fraction of the amount is referred to as the margin.
A margin call is initiated by the broker and is referred to as a risk warning that occurs when there are insufficient funds left. This notification asks the trader to either add funds or close the trade. Stop out is the signal that tells that all the active positions will be closed by the broker when the margin level is not maintained.
What To Look For While Choosing A High-leverage Forex Broker:
1. Commissions And Other Trading Fees – Brokers primarily make money from either commissions or spreads. Spreads are of two types – floating spreads and fixed spreads. It is important that the trader understands the trading fees being charged by a high-leverage forex broker before opening an account.
2. Trading Software – Brokers offer various trading software like MetaTrader suite (MT4 and MT5), ActTrader, cTrader, etc. Traders must check whether the broker supports their preferred trading platform to make hassle-free trades.
3. Accounts Offered And Trade Minimums – Minimum deposit amount is the amount required to open a trading position. There are brokers that have zero initial deposits required to open an account with them, however, they will have a trade minimum to open and execute the trade. Consider checking the initial deposit and trade minimums offered by the shortlisted high-leverage forex broker.
4. Technical Tools Offered By The Broker – There are certain technical tools that can be used to limit the losses like stop-loss, trailing stop- loss and take-profit. These orders are placed while opening the position. Make sure the trading platform has a good execution speed for these orders to avoid unnecessary losses while choosing a high-leverage forex broker.
5. Negative Balance Protection- Negative balance protection is a feature offered by the broker that ensures that the trading account does not go negative. This is a very crucial risk management feature. Traders should consider a high-leverage forex broker that offers negative balance protection.
Leverage can be highly profitable depending on how it is being used and handled. Leveraged trades can lead to heavy losses if the trader is not careful enough. Forex brokers offer leverage as high as 1:3000, however, it must be used cautiously.
CFD Trading for Beginners
CFD or Contract of Difference is an interesting way of trading the financial markets where traders make profits from the price fluctuations as anticipated by the trader without actually owning any financial asset. CFD trading is also considered as derivative trading, as the traders do not have to buy or sell the actual financial asset, instead the profits are derived from the speculation made by them.
CFD trading is an acronym used for “Contract of Difference” which is an agreement or a contract between the trader and CFD broker allowing traders to make money simply by anticipating the market price movement. The profits or losses made in CFD trading depends on the extent to which your anticipation is right. Traders can speculate the price movements in either direction and can benefit from it.
Features to Know About CFD Trading
Some of the Important Features of Online CFD Trading Are:
Short and Long Trading:
CFD trading allows traders to benefit from price movement on either side of the market. In other words, traders can make profits in bullish as well as bearish markets unlike conventional trading. For eg. If traders depict that the price of any underlying asset is going to decrease, they can place a sell underlying asset order and make profits from the difference in price between when the position was opened and when it closed. In this case, traders will only make profit if the prices go down, and if the prices increase, traders will lose and vice versa. With both long and short trades, profits or losses are realised when the trade is closed.
Leverage in CFD Trading:
CFD trading is leveraged and traders can open large trading positions without committing the full cost of the trade. While leverage can amplify the potential profits, it can also amplify the risks in the trade. This means that both the profits and losses are magnified. Losses can become more than the initial deposits. Therefore, it is very important to keep in mind that the profits or losses will be calculated on the full size of the position. Also consider to pay extra attention to the ratio of leverage used and the risks are affordable.
Margin in CFD Trading:
Leverage is also referred to as “trading on margin” or “margin trading.” Margin is the minimum amount that is required to open and hold a CFD trading position on a CFD account. In CFD there are two types of margins required- first, a deposit that is required to open and maintain the position in case of incurred losses. Second, additional funds in the account. Traders receive a margin call from their CFD broker and traders will be asked to add more funds in the CFD account, and if the required amount is not added, the position gets automatically closed and losses incurred become realised losses.
Hedging with CFD:
CFD can also be used to hedge against the losses incurred in the current portfolio. For eg. If the trader anticipates any short term downfall in the price of the underlying asset, they can go short in the market and limit their potential losses. Hedging like this helps in gaining profits with any drop in prices.
What Financial Instruments Can You Trade via CFDs?
With online CFD trading, traders can trade a wide range of markets via CFDs like – CFD forex, CFD indices, CFD Commodities, and CFD Cryptocurrencies. Traders do not need to actually buy the underlying asset to trade them in these CFD markets.
Mechanism of CFD Trading
Commissions and Spreads:
The prices in CFD trading are quoted as buying price and selling price.
- Buy Price: Buy price or ask or offer price is referred to as the price at which trader can open a long CFD position
- Sell Price: Sell price or bid price is referred to as the price at which the trader can open a short CFD position
Sell price is always slightly lower than the current market price whereas the buy price is always slightly more than the current market price. The difference between the buy/ ask price and sell/bid price is known as the spread.
The trading costs are generally covered in the spreads which means buy and sell prices are adjusted to reflect the overall trading costs.
CFD trading is carried out in standard lots. However, CFD brokers offer traders flexibility in choosing position size of their trade, depending on the underlying asset being traded.
Duration of CFD Trades:
Generally, CFD trading doesn’t have any expiry date, unlike option trading. The CFD trades are closed by opening in the opposite direction to which the trade was opened. For eg. a buy position of any underlying asset is closed by opening a sell position and selling the underlying asset.
If CFD positions are kept open beyond the daily cut-off time, an overnight funding is charged. The cost referred is the cost that is lent to the trader by the provider to open a leveraged trade. With the exception of being a forward contract, it has an expiration at some time, all the overnight funding charges are included in the spreads.
Profit and Loss:
To calculate the profits and losses there is a formula that is used. Deal size of the position is multiplied with the value of each contract, then the figure obtained is multiplied by the difference in points between the price at which the contract is opened and the price at which the contract is closed.
Therefore the formula can be expressed as:
Profit and loss = (number of contracts x value of each contract) x (closing price – opening price)
CFD Markets That Can Be Traded via CFDs:
Online CFD trading has opened a wide range of CFD markets to the traders without owning any of the underlying financial assets. Traders can trade markets including CFD Forex, CFD Indices, Commodities,and Cryptocurrencies.
CFD Trading for Beginners:
Beginners might find CFD trading overwhelming, however, traders can consider the following tips helpful trading CFDs
It is preferable if beginners start out with a CFD demo account to familiarise and get a feel of the CFD platform. Beginners can test their trading strategies using virtual currencies and polish their trading skills, before committing to any real money.
Stick to the Financial Market That You Understand the Most
There are a number of CFD markets for trading and anyone can be chosen to trade with. Traders must stick to the CFD market that they are familiar with. Once you start gaining confidence in one CFD market, you can diversify your portfolio.
Start With Small Trade Sizes
Beginners should start with small trade sizes to avoid facing losses in the initial phase. This will help in limiting the risks. It is better if the risk is limited to only 1- 2% of total CFD account capital.
Use Strict Risk Management
Implying strict stops is very crucial when it comes to CFDs. CFD markets move more rigorously than conventional markets that can lead to losses. It is wise to keep the emotion out while trading CFDs. Successful traders never neglect using strict stops regardless of their trading experience.
The CFD markets being highly volatile are risky. However, traders can make profits if they gain extensive knowledge and skills.
What Is A Leverage Ratio And How Do You Calculate It?
Leverage in forex is a trading approach where traders borrow the money from the broker which allows traders to open and control a larger trading position with a relatively smaller amount of money. In other words, leverage gives traders the power to control something big with something small. Read More
Leverage is defined as the ratio of the trader’s fund to the size of the broker’s credit. It allows traders to increase their funds and get maximum market exposure with a comparatively smaller amount of money. Leverage can magnify the profits of the trader if he knows the right trading technique to use it. Leverage is represented in the form of a ratio. The ratio includes the trader’s fund to the size of the money lent by the broker. There are many leveraged forex brokers that offer leverage as high as 1:3000. To calculate the margin-based leverage, divide the total transaction value by the margin required. So, the margin-based leverage = transaction value/ margin required For e.g., if the leverage forex broker is offering the leverage of 1:100, this means that 1% of the total transaction value is required by the trader which is also known as the margin. If the trader wants to trade one standard lot of ($100,000) EUR/USD, then the 1% which is required by the trader is $1000. This means that the trader needs $1000 to control the position of $100,000. Using the above formula, the margin requirement for using other leverage ratios can be calculated. For e.g., if the margin-based leverage is: 1:400 then the margin required of the total transaction is 0.25%. For 1: 200 the margin requirement is 0.50% of the total transaction value, and for 1:50 is 2% of the total transaction value. Leverage is considered a double-edged sword that can amplify both potential profits as well as risks. Let’s understand how? If the trader wants to trade 0.1 lot of EUR/USD at 1.23228, he will require $123,22 USD in his account. But his trading account balance is $500 USD. If leverage of 1:500 is applied, he requires a margin of $123 USD to open this position, and $12,199 USD is lent by the broker. Balance in the trading account (in the above case $500 USD) and unrealized profit or loss on the transaction together are known as equity margin. Equity margin reflects whether the market is going against or in the favor of the trader. The minimum amount required to open the trade is known as the margin (in the above case $123 USD). The difference between the account balance and the margin is known as the free margin (in the above case $277 USD). If the market goes upward or in the favor of the trader, the free margin keeps on increasing and the margin remains the same. When the leveraged position is closed, brokers pull out their money and the profits are released to the trader. But if the market goes against the trader, and the market price is about to hit the free margin level, the broker sends a margin call where traders are asked to either close the position or add extra funds. If the traders fail to do any of this, brokers initiate a stop-out where the position is closed. The main risk in leveraged trading is that if the market becomes highly volatile due to any sudden news or data release, while the position is opened and the prices fluctuate so rigorously that sometimes brokers might not be able to close your position, that can lead to heavy losses. In such cases, the broker’s funds also start depleting which is an additional risk. Traders are liable for all the losses which mean traders need to pay the lost amount to the broker. Leverage can magnify potential profits if the traders have good trading knowledge and skills. However, it can also blow the trading account if the trader does not know what he is doing. It is important for traders to apply a strict risk management strategy to the trade and avoid trading with money they can’t afford to lose.
What is leverage?
Calculating The Margin-Based Leverage:
How Does Leverage Affect The Trades?
Leverage is defined as the ratio of the trader’s fund to the size of the broker’s credit. It allows traders to increase their funds and get maximum market exposure with a comparatively smaller amount of money. Leverage can magnify the profits of the trader if he knows the right trading technique to use it.
Leverage is represented in the form of a ratio. The ratio includes the trader’s fund to the size of the money lent by the broker. There are many leveraged forex brokers that offer leverage as high as 1:3000.
To calculate the margin-based leverage, divide the total transaction value by the margin required.
So, the margin-based leverage = transaction value/ margin required
For e.g., if the leverage forex broker is offering the leverage of 1:100, this means that 1% of the total transaction value is required by the trader which is also known as the margin. If the trader wants to trade one standard lot of ($100,000) EUR/USD, then the 1% which is required by the trader is $1000. This means that the trader needs $1000 to control the position of $100,000.
Using the above formula, the margin requirement for using other leverage ratios can be calculated.
For e.g., if the margin-based leverage is: 1:400 then the margin required of the total transaction is 0.25%. For 1: 200 the margin requirement is 0.50% of the total transaction value, and for 1:50 is 2% of the total transaction value.
Leverage is considered a double-edged sword that can amplify both potential profits as well as risks. Let’s understand how?
If the trader wants to trade 0.1 lot of EUR/USD at 1.23228, he will require $123,22 USD in his account. But his trading account balance is $500 USD. If leverage of 1:500 is applied, he requires a margin of $123 USD to open this position, and $12,199 USD is lent by the broker.
Balance in the trading account (in the above case $500 USD) and unrealized profit or loss on the transaction together are known as equity margin. Equity margin reflects whether the market is going against or in the favor of the trader. The minimum amount required to open the trade is known as the margin (in the above case $123 USD). The difference between the account balance and the margin is known as the free margin (in the above case $277 USD).
If the market goes upward or in the favor of the trader, the free margin keeps on increasing and the margin remains the same. When the leveraged position is closed, brokers pull out their money and the profits are released to the trader. But if the market goes against the trader, and the market price is about to hit the free margin level, the broker sends a margin call where traders are asked to either close the position or add extra funds. If the traders fail to do any of this, brokers initiate a stop-out where the position is closed.
The main risk in leveraged trading is that if the market becomes highly volatile due to any sudden news or data release, while the position is opened and the prices fluctuate so rigorously that sometimes brokers might not be able to close your position, that can lead to heavy losses. In such cases, the broker’s funds also start depleting which is an additional risk. Traders are liable for all the losses which mean traders need to pay the lost amount to the broker.
Leverage can magnify potential profits if the traders have good trading knowledge and skills. However, it can also blow the trading account if the trader does not know what he is doing. It is important for traders to apply a strict risk management strategy to the trade and avoid trading with money they can’t afford to lose.