CFD Trading

CFD Information

WHAT ARE CFDs?

A contract for difference (also known as CFD) is a contract between two parties: buyer and seller, specifying that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time.

However, if the difference happens to be a negative one, then the buyer pays to the seller instead. For example, when applied to equities, this kind of contract is an equity derivative that allows investors to speculate on share price movements, without the need for ownership of the underlying shares.

CFDs give investors the chance to take long or short positions. CFDs have no fixed expiry date or contract size, unlike futures contracts,. Trades are conducted on a leveraged basis with margins typically ranging from 1% to 20% of the notional value for CFDs on leading equities.

WHY TRADING CFDs?

LEVERAGE YOUR INVESTMENT POTENTIAL

CFDs are traded on leverage, so it's possible to increase your exposure to an underlying asset from the same initial investment. To open a CFD trade, you need to deposit only a part of the total trade value, usually an amont around 1-20 percent, allowing you to take a larger position that would be harder to take if you had to fund it in full.

Leverage is great news if the market moves in the direction that you expect, but it becomes a risk if the market moves against you.

TRADE FINANCIAL MARKETS AROUND THE WORLD

CFD trading gives you access to a broad range of markets that usually are not available to retail investors. It is as easy to trade on the price movement of commodities such as oil or gold as it is to trade an individual equity. CFDs also let you to speculate on whole indices or sectors from one single trade.

PROFIT WHEN MARKETS FALL AS WELL AS RISE

By 'going short' (that is, selling), you can profit from a falling market as easily as you could profit from a rising market by buying it. If you think that a company or a market will have a loss of value in the short term,then you can use CFDs to sell it now, with the expectation that you can buy it later. However, if the price of your trade moves against you, your position will result in a loss.

HEDGE OTHER INVESTMENTS

Since CFDs offer the possibility of going easily as short as long, they can be used to provide a certain insurance against price falls in a portfolio. For example, if you have a long-term portfolio that you wish to keep, but you feel that there is a short-term risk to the value of your investments, you could use CFDs to damage-control a short term loss by 'hedging' your position. If the value of your portfolio falls, then the profit in the CFDs should offset these losses.

Currency Exchanges

Futures

Equities

ETFs

CFD ETF Trading Examples

After 2 days the market has risen and you decide to close your position.

ETF Basics and Facts

Exchange traded funds offer individual investors:

• Advantages of stocks and mutual funds combined
• Lower fees** (ordinary brokerage commissions apply)
• Lower capital gains taxes**

Recently, these exceptional features and benefits have helped exchange traded funds explode in popularity and emerge as one of the most flexible, multi-purpose investment vehicles available.

Ever since the American Stock Exchange championed and pioneered the concept of a tradable basket of stocks with the creation of the Standard & Poor's Depositary Receipt (SPDR) in 1993, exchange traded funds have evolved into a completely new investment category.

Today, the number of ETFs listed and traded at the Amex has grown to more than 180 and continues to grow—not only in the number of products and their variety—but also in terms of assets and market value.

What are exchange traded funds?

Exchange traded funds (ETFs) are index funds or trusts* that are listed on an exchange and can be traded intraday. Investors can buy or sell shares in the collective performance of an entire portfolio as a single security. Exchange traded funds add the flexibility, ease, and liquidity of stock trading to the benefits of traditional index fund investing.

The American Stock Exchange lists ETFs on more than 180 broad stock market, stock industry sector, international stock, U.S. Treasury, and corporate bond indexes and commodities, providing a vast selection of investment opportunities. ETFs provide a simple and effective way to invest in markets all over the world. Investors can set long-term investments in the market performance of the top companies in the top industries within the United States or abroad, or customize asset allocations using diversified investments in stocks in particular industries or countries or in U.S. bonds or commodities.

The advantages of ETFs:

Tax efficiency**
ETFs, like index funds, offer greater tax benefits because they create fewer capital gains due to low turnover of the securities that comprise the portfolio. Generally, an ETF only sells securities to reflect changes in its underlying index. Exchange trading of ETFs further enhances their tax efficiency. Investors who want to liquidate shares in an ETF simply sell them to other investors through exchange trading.

Because of this particular structure, ETFs are not required to sell securities to meet investor cash redemptions, potentially generating capital gains tax liability for remaining investors. Keep in mind that the sale of an ETF will generate capital gains/losses for the investor liquidating shares.

Lower costs**
Expenses can have a masive impact on returns for investors. ETFs usually have a notoriously lower annual expense ratio than other investment products. ETFs are less likely to experience high management fees because they are index-based, not "actively" managed.

Since they trade on an exchange, ETFs are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions. An investor selling ETF shares may realize capital gains or losses, as with common stocks. Purchases or sales of exchange traded funds are subject to brokerage commissions.

Transparency
ETFs are usually designed to match the performance of their underlying index or commodity.

Buying and selling flexibility
Because they are exchange traded, ETFs can be:

• Bought and sold at intraday market prices
• Purchased on margin
• Sold short
• Traded using stop orders and limit orders, which help investors to specify the price points at which they are willing to trade

All day tracking and trading
ETFs are priced and traded throughout the day, and are not restricted to once-a-day trading at the end of the day.

Due to the pricing of ETFs is continuous during trading hours, investors will always be able to obtain updated share prices from their broker or financial adviser.

Diversification*
Since each ETF is comprised of a basket of securities, it inherently provides diversification across an entire index. Also, the expanding possibilities of ETFs available at the American Stock Exchange offer exposure to a diverse variety of markets, including:

• Broad-based equity indexes (i.e.: as total market, large-cap growth, and small-cap value)
• Broad-based international and country-specific equity indexes (i.e.: Europe, EAFE, and Japan)
• Industry sector-specific equity indexes (i.e.: healthcare, energy, and real estate)
• U.S. bond indexes (i.e.: long-term Treasury bonds and corporate bonds)
• Commodities (i.e.: gold, silver, and oil)

Dividend opportunities
Dividends paid by companies and interest paid on bonds held in an ETF are distributed to ETF holders, less expenses, on a pro rata basis.

However, not all companies will pay dividends. Based on past performance, few distributions can be expected from certain ETFs. There may also be opportunities for reinvestment of distributions.

Wide array of investment strategies
Investors can benefit from the convenience and flexibility of ETFs to pursue a vast array of investment strategies.

• Core investment

  Investors can use ETFs as a core investment for their portfolio. The purchase of shares in a single ETF can provide broad market exposure for long-term holding that is simple to establish, easy to track, inexpensive, and tax efficient.road-based equity indexes (i.e.: as total market, large-cap growth, and small-cap value)

• Portfolio diversification

  ETFs cover virtually every segment of the equity market and several segments of the U.S. bond market and commodities, providing an easy and convenient way to adjust the investment mix of a core portfolio.

• Hedging

  Exchange traded funds can be purchased on margin and sold short, which has opened up risk management strategies for individual investors that were available just for large institutions. For example, ETFs can be sold short to hedge a core stock portfolio or interest rate fluctuations. This allows investors to keep their portfolio intact while protecting them from market losses.
  
  In a declining stock market or rising interest rate environment, profits from a short position can offset some of the losses in a portfolio. (Investors are required to make arrangements to borrow securities before selling short.) Listed options, available on some ETFs, also offer chances for additional hedging or to increase income. Investors should contact their broker regarding initial and maintenance margin requirements.

• Cash management

  ETFs have often been used to "equitize" cash, providing a way for investors to put cash to work in the market or maintain allocation targets while determining where to invest for the longer term.

• Rebalancing

  Investors can adjust ETF positions whenever they need to throughout the trading day, without redemption fees or short-term restrictions. Usual brokerage commissions will apply.

• Tax loss strategy

  An investor can sell a security that is underperforming and claim a tax loss but retain exposure to its sector by investing in an ETF. It is recommended to consult a tax advisor about a tax loss strategy.

Risks and other considerations

ETF shareholders are subject to risks similar to those of holders of other diversified portfolios. A basic consideration is that the general level of securities or commodities may decline, affecting the value of an exchange traded fund because ETFs represent interest in securities or commodities.

When interest rates rise, bond prices will probably decline, affecting adversely the value of fixed income ETFs. Moreover, the overall depth and liquidity of the secondary market may also fluctuate.

An exchange traded sector fund may also be adversely affected by the performance of that specific sector or group of industries on which it is based.

International investments may involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, or economic, political instability in other nations.

Although exchange traded funds are designed to provide investment results that generally correspond to the price and yield performance of their respective underlying indexes or commodities, the trusts may not be able to exactly replicate that performance because of trust expenses and other factors.

* iShares COMEX Gold Trust, iShares Silver Trust, and United States Oil Fund are not index funds or diversified baskets of securities. ProShares seek performance that corresponds to a multiple, inverse, or inverse multiple of an index.

** ProShares Trust portfolios will experience high levels of portfolio turnover, which will increase transaction expenses and may be more likely to generate taxable short-term capital gains than other ETFs.

CFD Equities Trading Examples

• As with traditional share dealing, CFD prices are quoted as a Bid (the price you can sell at) and an Offer (the price you can buy at). With CFD trading you buy a CFD based on a certain amount of the underlying asset.
• The following worked examples show how you can use CFDs to trade a number of different markets.
• These examples show trades that result in both profits and losses.
• CFD trading example (Equities) - Buying Yahoo (YHOO)
• You believe that the shares of Yahoo will rise, so you decide to buy a CFD based on 3000 shares.
• Tradeview Forex quotes you a spread of $13.47/$13.49 for Yahoo (YHOO).

After 2 days the market has risen and you decide to close your position.

CFD Futures Trading Example

• With CFD trading you buy a CFD based on a certain amount of the underlying asset. In this case, we will examine how to trade futures.
• The following worked examples show how you can use CFDs to trade a number of different markets.
• These examples show trades that result in both profits and losses.
• CFD trading example (Index) - Selling the US TECH 100
• You believe that the US TECH 100 will fall so you decide to sell a CFD based on 100 underlying futures contracts for that market.
• Tradeview Forex quotes you a spread of $13.47/$13.49 for Yahoo (YHOO).

After 2 days the market has risen and you decide to close your position.

Order Types

Orders are trading tools that help the trader to fully or partially open, close, or amend positions. They are useful for managing risk.

At Tradeview Forex, we have a range of orders to help you get into, and out of, positions at the price you want to.

Limit Orders

A Limit Order is an instruction to buy or sell a market when it reaches a price that surpasses the prevailing, at the time of placing the Order. It can be used to open a new position, where you anticipate a more favorable market price (either buy or sell). It can also be used to close an existing Open Position, when a market reaches a certain level.

For instance, if our quote for UK 100 Rolling Spread is 5873.8 / 5875.8

To open a new position:
If you thought the market was going to reach 5700.5 and then reverse and go higher, and you had no Open Position in the market, you would leave a new Limit Buy Order at 5700.5. If the price reaches 5700.5 or lower, then the Order is activated and you would have a new long (buy) position in the market.

To close a position:
If you were long (had a buy position) in the market and wished to take your profit when the market reached 5950.8, you would leave a Limit Sell Order at 5950.8, which would activate when the Sell price hit 5950.8 or higher. If activated, this Order would close your position and realize any profit (or loss if you opened your position above 5950.8.).

Stop Orders

A Stop Order is an instruction to buy or sell a market at a price which is worse than that prevailing, at the time of placing the Order. It can be used to open a position if there is a chance that a market could move even higher once it moves above a particular level (when buying), or even lower if it moves lower than a particular level (when selling). Stop orders can also be used to close a position (a tool for managing risk).

E.g. If our quote for Australian 200 CFD is 5100 / 5106

To open a new position:
If you felt that the market traded up to 5150 and it would continue even higher, then you would leave a new Stop Order to Buy at 5150. If the Buy price hit 5150 or higher, the Order would execute and open a long position.

Stop Loss Orders

A Stop loss order is an instruction to buy or sell a market at a price which is lower than the opening price of an open position (or lower than the prevailing when applying the stop loss to an existing open position). It can be used to help protect against losses.

E.g. If our quote for Australian 200 CFD is 5100 / 5106

To close a position using a stop loss:
If you were long in the market and wished your position to be closed if the market went beneath 5000, then you would leave a Stop Loss Order linked to that position to Sell at 5000. If the price fell to 5000 (or lower) then the Stop would be executed and close that position.

Trading Hours

Overnight Positions

If you carry a Share CFD position overnight, it will cause a financing cost or benefit. Finance costs/benefits will be on 100% of the value of your exposure. If you are long, you may have to pay interest to Tradeview Forex; if you are short, you may receive interest.

Financing for non-currency positions

There is a daily financing charge or credit related to any CFD position which is held overnight. This is calculated using the following formula:

Your account will be debited a financing amount for each long CFD position that you hold, and will be credited a financing amount for each short CFD position that you hold.

The financing rates used are +/- 2%

If a position is held on a Friday or prior to a non-business day in the relevant market, financing will be applied on the number of days until the next business day.

For instance, for a position held at the close of business on a Friday, financing will be applied for 3 days if the next business day is a Monday.

Financing for currency positions

When it comes to currency positions, the daily financing is calculated by using the one day interest rate differentials for the two currencies concerned. You receive the interest on the currency you have bought and pay interest on the currency you have sold, although the financing posting/adjustment will be made in one currency.

For a position held on a Friday or prior to a non-business day in the relevant market, financing will be applied on the number of days until the next business day.

For a position held at the close of business on a Friday, financing will be applied for 3 days, assuming the next business day is a Monday.

Notice Regarding CFDs on Futures:

When trading CFD's on futures, your position will automatically be closed on the basis of the applicable time and date of the contract expiration listed. Positions will not be rolled over or extended beyond this deadline.

By entering into any CFD transaction with Tradeview Forex, you agree that Tradeview Forex is not responsible for any losses incurred as a result of the automatic closure of these positions at the time and on the date disclosed to you on each CFD.