CFD

In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (If the difference is negative, then the buyer pays instead to the seller). In effect CFDs are financial derivatives, that allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.users know a little more about you.

CFDs are currently available in Australia, Austria, Canada, Cyprus, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, The Netherlands, Luxembourg, Norway, Poland, Portugal, Romania, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and New Zealand. They are not permitted in a number of other countries—including the United States[citation needed], due to restrictions by the U.S. Securities and Exchange Commission on over-the-counter (OTC) financial instruments.

History

CFDs were originally developed in the early 1990s in London as a type of equity swap that was traded on margin. The invention of the CFD is widely credited to Brian Keelan and Jon Wood, both of UBS Warburg, on their Trafalgar House deal in the early 90s.

They were initially used by hedge funds and institutional traders to hedge cost-effectively their exposure to stocks on the London Stock Exchange, mainly because they required only a small margin and because no physical shares changed hands avoided the UK tax of stamp duty.

In the late 1990s CFDs were introduced to retail traders. They were popularised by a number of UK companies, characterised by innovative online trading platforms that made it easy to see live prices and trade in real time. The first company to do this was GNI (originally known as Gerrard & National Intercommodities); GNI and its CFD trading service GNI touch was later acquired by MF Global.

It was around 2000 that retail traders realised that the real benefit of trading CFDs was not the exemption from tax but the ability to leverage any underlying instrument. This was the start of the growth phase in the use of CFDs. The CFD providers quickly expanded their offering from London Stock Exchange (LSE) shares to include indices, many global stocks, commodities, bonds, and currencies. Trading index CFDs, such as the ones based on the major global indexes e.g. Dow Jones, NASDAQ, S&P 500, FTSE, DAX, and CAC, quickly became the most popular type of CFD that were traded.

Trading

CFDs are traded between individual traders and CFD providers. There are no standard contract terms for CFDs, and each CFD provider can specify their own, but they tend to have a number of things in common.

The CFD is started by making an opening trade on a particular instrument with the CFD provider. This creates a ‘position’ in that instrument. There is no expiry date. Once the position is closed, the difference between the opening trade and the closing trade is paid as profit or loss. The CFD provider may make a number of charges as part of the trading or the open position. These may include, bid-offer spread, commission, overnight financing and account

management fees. Even though the CFD does not expire, any positions that are left open overnight will be 'rolling'[citation needed]. This typically means that any profit and loss is realised and credited or debited to the client account and any financing charges are calculated. The position then carries forward to the next day. The industry norm is that this process is done at 10pm UK time.

CFDs are traded on margin, and the trader must maintain the minimum margin level at all times. A typical feature of CFD trading is that profit and loss and margin requirement is calculated constantly in real time and shown to the trader on screen. If the amount of money deposited with CFD broker drops below minimum margin level, margin calls can be made. Traders may need to cover these margins quickly otherwise the CFD provider may liquidate their positions.

Margin

Traders in CFDs are required to maintain a certain amount of margin as defined by the brokerage or market maker (usually ranging from 0.5% to 30%). One advantage to traders of not having to put up as collateral the full notional amount of the CFD is that a given quantity of capital can control a larger position, amplifying the potential for profit or loss. On the other hand, a leveraged position in a volatile CFD can expose the buyer to a margin call in a downturn, which often leads to losing a substantial part of the assets.

CFDs allow a trader to go short or long on any position using margin. There are always two types of margin with a CFD trade -

1-)Initial Margin - (normally between 3% and 30% for shares/stocks and 0.5% - 1% for indices, foreign exchange and commodities)

2-)Variation Margin - (which is then 'marked to market').

Initial margin is fixed at between 0.5% and 30% depending on the underlying product and overall perceived risk in the market at that time. For example, during and after 9/11 initial margins were massively hiked across the board to counter the explosion in volatility in the world's stock markets

Why Trade CFDs with OTL Trading?

Tight Spreads and Minimum Commissions

OTL Trading pride ourselves on having some of the minimum commissions and tightest dealing spreads on CFD FX in the market, whilst maintaining our quality service. We strive to differentiate ourselves from other CFD brokers by offering the best online CFD trading platform.

Flexible Margin Requirements

CFD traders can benefit from some of the lowest margin requirements in the industry, meaning customers will only have to deposit a small percentage of the total notional value of the trade when looking to open new positions.

24-Hour Live Online Support

At OTL Trading we recognise the importance of clients being able to access their account and trade whenever they want, wherever they are, particularly when market prices are moving quickly. We therefore provide our clients unrestricted access to their account 24 hours a day, 5 days a week via the Vtx software available for download.

OTL Trading Offer CFD Produts

we are offering major Currencies, Metal, Commodeties, Energy & Indices

Currencies

• Euro
• Pound
• Japness Yen
• Swiss Frank
• Australian Dollar
• Canadaian Dollar

Metal

• Gold
• Silver
• Copper

Commodeties

• Wheat
• Soyabean

Energy

• Crude Oil

Indices

• Mini S & P
• Mini Nasdaq
• Mini Dow Jones