If a stock has an ask price of $25.26 and 100 shares are bought at this price, the cost of the transaction is $2,526. With a traditional broker, using a 50% margin, the trade would require at least a $1,263 cash outlay from the trader With a CFD broker, often only a 5% margin is required, so this trade can be entered for a cash outlay of only $126.30.
It’s important to remember though, that trading A CFD allows you to speculate on leveraged products, meaning that you have more buying power at your disposal to truly capitalize on your investment. Therefore, although potential profits are significantly increased, potential losses can also be exacerbated. This is where a strong risk management plan is essential!
You would normally only pay a financing charge if you hold a long position. This is because CFDs are a margined product. You only deposit a fraction of the overall value of the trade (typically 10%), allowing you to make a much larger potential investment than if you were buying the shares. So for example, $1,000 would be needed to buy a CFD representing $10,000 worth of shares. You are effectively ‘borrowing’ the $9000 difference, hence the financing charges.
Within an investment portfolio shares, funds, bonds, and property are known as assets. Generally, the term refers to something that has a realizable value or will generate net revenues greater than the cost of the item itself. An asset is anything that might be set against liabilities.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency. There are four major currency pairs that are traded most often in the foreign exchange market. These include the EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
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