CFDs Demystified: Understanding Contracts for Difference with Fxview

Multi-award winner ECN broker, Fxview, provides an overview of Contracts for Difference (CFDs) to enable traders to leverage their full potential.

What are Contracts for Difference and how do they work?

Contracts for Difference (CFDs) are agreements established between a buyer and a seller where the differences in settlement between the open and close prices are settled in cash. Based on underlying assets such as stocks, commodities, indices or cryptocurrencies, CFDs are derivative instruments allowing both buyers and sellers to speculate on the price differential without retaining any ownership right over the underlying asset.

To trade CFDs, traders buy or sell a number of units of their desired asset according to their market outlook. If the CFD trader expects the underlying asset’s price to rise, they will enter into a long (buy) position; if they expect the price to fall, they will enter into a short (sell) position. When the trader’s expectations align with their chosen asset’s price movement, they make a profit. Contrastingly, when their prediction is incorrect, they incur a loss.

The advantages of CFD trading with Fxview

Trading CFDs offers several advantages. Most importantly, with CFDs, traders can generate returns from both upward and downward market movements, without owning the underlying asset. Fxview offers a comprehensive array of CFD options, including Forex, Indices, Commodities, and Stocks, allowing traders to access an abundance of lucrative trading opportunities at ultra-low commissions.

CFD trading also provides the opportunity to trade on margin and use leverage. This means that traders can make a smaller initial payment instead of paying the full value of a position and cover the rest with borrowed funds. Thus, using leverage, traders can increase their exposure to certain assets or market sectors while committing less capital than would be typically required.

Albeit speculative, CFDs empower traders to adapt to different market conditions, time frames, and risk preferences, enabling them to tailor their trading approach to suit their individual goals and trading styles. By offering both lower and higher leverage options, Fxview allows its clients to customise their leverage level according to their risk tolerance and financial goals.

Navigating CFD risk with Fxview

While CFD trading presents lucrative prospects, it is essential to understand the potential risks involved. One such significant risk is the impact of leverage on losses. Essentially, while leverage amplifies potential gains, it also magnifies losses in equal measure. Therefore, traders must be cautious when utilising leverage to protect themselves from significant financial setbacks. For example, traders can opt for Fxview’s lower leverage options to manage risk under uncertain market conditions.

Additionally, liquidity risk is another important consideration, as it may negatively impact traders’ ability to execute trades promptly and at the desired prices. As an ECN broker, Fxview connects traders with Tier-1 liquidity providers, utilises low-latency technology, and provides a choice of order-filling methods (e.g., Stop Loss, Take Profit, Limit Orders, Trailing Stop), enabling clients to obtain the best possible market prices and prevent slippage.

Further, thanks to Fxview’s implementation of negative balance protection, clients cannot experience losses exceeding their initial investment when faced with volatile market conditions.

Tips for successful CFD trading with Fxview

To offset some of the risks associated with CFD trading and take complete control of their trading journey, traders should take the following tips into account:

• Conducting thorough research. Traders must possess a deep understanding of the underlying assets and instruments they are trading and stay up to date with market news. That way, they can grasp fundamental factors and market dynamics that can influence the price of CFDs and make well-informed trading decisions. Traders can access Fxview’s practical resources, such as market analysis reports and a news calendar, to assist them in this process.

• Setting risk management parameters. In order to protect their capital from unexpected market movements, traders should consider risk management techniques, such as implementing Trailing Stop, Stop Loss and Take Profit orders. The advanced trading platforms offered by Fxview, - MT4, MT5 and ActTrader - come with all the necessary tools and features to enable traders to implement their chosen trading strategy and manage their risk exposure.

• Trading with a reliable broker. Frequent trading can lead to the accumulation of major spread costs over time. For this reason, it is imperative to find a broker who offers low or even raw spreads (without mark-ups). Fxview is among the few brokerage firms to offer raw ECN spreads, aiding traders in building well-balanced portfolios cost-effectively.

Traders should also prioritise brokers that adhere to robust regulatory guidelines to guarantee their funds are in safe hands. One such example is Fxview, which is licensed and regulated by CySEC, the FSC, FSCA and is registered with other well-respected regulatory bodies internationally, effectively shouldering its clients’ fund safety concerns. The broker also participates in the Investor Compensation Fund, insuring client funds up to €20,000.

Fxview has been awarded various prestigious accolades, including ‘Best ECN/STP Broker’ at UF AWARDS MEA 2023 and ‘Best Multi-Asset Broker Africa’ from the Financial Achievements in Markets Excellency Awards at a ceremony held in front of the fintech elite in Johannesburg, South Africa, in early May 2023.

The broker welcomes traders of all backgrounds onto its platforms. By harnessing the potential of CFDs and partnering with Fxview, traders can unlock new opportunities and navigate the trading landscape’s complexities with more confidence.