Characteristics of a Good Online Broker

With most of the financial transactions taking place over the Internet, it has become essential that you choose an online broker for your trading requirements. If you have been using an offline broker earlier, it might be easy for you to check whether they have created an online presence. This will help you move to an online broker platform easily without having to go through the trouble of choosing an online broker.

This is because choosing an online broker is something that should be done with care. You need to be able to look at various options that are present and then choose the one online broker that you think will be able to suit you the most.

An online broker is expected to suggest the right kind of trades for you after understanding your needs. While an online broker is not expected to act like a financial consultant, some of the online brokers that you may come across may actually be great with such tips.

Another thing that an online broker should always provide you is detailed analysis of the stocks and trades that you are interested in. In this manner you shall be able to check out the trends in the prices of the stocks so as to make informed decisions about trades.

An online broker is obviously also expected to execute the trades that you order and manage the same from the online trading account that you have created. Do discuss the brokerage and commissions and read the contract carefully for hidden costs before finalizing.

Trading in Global Markets

With globalization and the proliferation of the Internet, we can see how boundaries are being erased despite the political issues that some of the countries continue to have. Whether you can trade in specific global markets or not is dependent on the rules and policies of the country that you live in. However, in most of the open economies, it is now possible to trade on the stock exchange of other countries as well.

Due to the difference in currencies, trading in the global markets can prove to be extremely challenging. Do not take the leap unless you have understood the pros and cons of trading in various areas like equities, options, futures, commodities and more in the global markets.

You may also want to decide the global markets that you want to dapple in. This is because there shall be various considerations that will affect the economy in the specific global markets that you are trading in and you may need to understand the political, economic and financial situation in the areas. Other factors such as liquidity, transparency and regulations also play an important role.

As in the case of any online trading, you will need to open a brokerage account to trade in the global markets as well. Choose the direct access option if you are confident that you shall be able to analyse the information and decide the trades that you want to make.

Remember that the risky global markets can make you lose large sums of money. This means that you should be careful about how you are investing and you should ensure proper research before you make a move.

What are the Duties of a Stockbroker?

If you have been considering a career in stockbroking and want to become a stockbroker you need to know the duties and responsibilities that you shall have as a stockbroker once you qualify. Reading through this will help you assess whether this is the kind of job that you are looking for. It is important that a stockbroker is trustworthy and reliable since the financial future of the clients depends on what the stockbroker does.

As a stockbroker you will need to recruit clients. This is one of the first things that you are likely to do especially if you are starting your own practice. Cold calls on prospects and soliciting for investment is part of the game. This means that you need to be able to take refusals and move on to the next client without any hard feelings.

Once you do get a client you will need to build relationships with them. A stockbroker needs to ensure that the client has complete faith in the stockbroker so that the relationship can flourish. Without faith it is tough to work together to create wealth.

A stockbroker is also expected to advice clients about the various trades that seem to show opportunity. It is important to understand here that the stockbroker is merely responsible to suggest and the final decision needs to come from the client.

Last but not the least a stockbroker is also expected to execute the trades that the client wants to enter and manage the share trading account for the client.

Characteristics of the Best CFD Providers

With the popularity of CFD trading in Australia, there are now a large number of CFD providers that you will be able to find. Most of these CFD providers are available on the internet and a simple search will bring up the top CFD providers that you may want to consider. However, you also need to know the characteristics of the best CFD providers to be able to choose them.

Check the markets that are offered by the CFD providers. While most provide over the counter CFD trading only the best CFD providers will be able to help you with exchange traded CFDs. It is also pertinent to work with the providers that are primarily CFD providers and not those who provide these services as part of a larger array of financial services.

The fee that the CFD providers charge should be seen from various angles. The overnight financing fee, the transaction fee, margin requirements, capital required, platform access fee and more should be taken into consideration before making any decision.

The best CFD providers also provide added services and freebies for their customers. While some may provide access to the trading platform, free of cost there are others that may help you with some high end technical analysis of the market. Look for the possibility of automatic stop losses too.

Make sure that the spread that the CFD providers offer is low and that you are not losing too much money by going through a broker and not going direct.

Tax Implications for CFD in Australia

As CFD in Australia is becoming prominent and popular, the one question that arises in the minds of many people is the manner in which CFD in Australia should be handled in terms of tax. While there are some that feel that CFD in Australia should be treated like every other investment, there are others who feel that CFD in Australia can be treated as gambling.

To understand the exact tax implication and the manner in which it can be interpreted, you need to know that CFD in Australia is not really a method of investment where you buy the assets. You do not purchase stocks, commodities or anything else. What you do is that you bet upon the future movement of the asset. Despite not owning the asset in CFD in Australia, you can get dividends. The price of the asset and the CFD in Australia are intertwined.

CFD in Australia is often considered to be taxed as gambling, as a regular business or as capital gains. It is considered to be gambling if you are a gambler and have little expertise in the stock market otherwise. The CFD investment should not be a regular thing and the gains should have been a one time or infrequent gain.

CFD in Australia is considered to be a regular business if the investments are done in a regular and systematic manner and if you are trained in stock trading. It is considered to be a capital gain when you are more than a casual gambler but not really a systematic and organized player in the market.

Getting Started with Stockbroking

The stock market is a complicated place where a large number of factors affect the share price of various companies. The number of factors are so large that it I impossible to predict the manner in which the price of a specific stock will move. However, there are many indicators that one can follow. To get started with stockbroking and to be able to solicit clients towards the stock market, you need to have a license to do the same.

To start with, you need to have a score of 85 or above in math, economics and business in high school. These are the various areas that can affect the stock prices and any kind of stockbroking requires you to have this basic qualification. You also need to have a diploma in accounting or an undergraduate degree in commerce or business.

To actually get into stockbroking on a regular basis, you can choose two alternate paths after you have the required qualifications. You can either study in a university for three years and get a degree or enter into stockbroking by taking the vocational education and training (VET) option.

Some of the courses that you can opt for include accounting courses at Macquarie University, Sydney University, University of NSW, Australian National University and more. What you get at the end of the day that allows stockbroking is a graduate diploma in applied finance and investment.

Irrespective of the path that you choose for stockbroking, you will need a license from Australian Financial Services.

Different Types of CFDs

There are basically two kinds of CFDs that exist in the market. One is called the Direct Market Access or DMA and the other is called Market Maker or MM. There are advantages and disadvantages of each of the CFDs and one should understand them before one decides the one that should be picked.

In the Direct Market Access, the CFD order is placed in an order book. This order book is the place where the buyers and sellers get prices for asks and bids. When CFDs are bought and sold in this manner, the trade affects the underlying value of the asset. This is the system in which complete transparency is a by-product since there is no middle man involved.

You can also place orders for CFDs via a market maker. It is believed that the prices that are quoted by the market make are slightly higher than those that are available directly in the market. If you want the convenience of dabbling in CFDs via a middle man, you will need to be ready to pay this amount. While the rates quoted for CFDs in this manner also are based on the market value, there is a personal element of price that the middle man adds to the CFDs.

The speed of transaction in the case of  CFDs ordered in the direct method is faster. There is no intervention of the middle person. However, you may find that you are limited to some of the top stocks when using this method.

Why Should You Trade in CFD?

CFD or contract For Difference is a trade where you can win or lose based on the difference in prices. The person who invests in CFD does not really own the asset but only bets on the direction in which the price will swing and the amount to which the price will move. Here are some reasons why you should consider CFD trading.

- High leverage – Since you do not have to purchase the stock itself and only bet on it, the margin required is as low as 5 per cent. This means that the leverage on the investment that you make can be as high as 20 times. However, it is also important to remember that the leverage can work both ways and you stand to lose a similar amount of money if you lose.
- Absence of an expiry date – A CFD does not deteriorate in value and does not have an expiry date like options. However, there are fees that need to be paid if the CFD is held for more than a day.
- Dividends – Some people believe that dividends are paid to only those who own the assets. However, in the case of a CFD, you can get dividends even when you do not own the asset.
- Easy – the concept of a CFD is easy to understand for all. One does not need to be a great player in the stock market to be able to evaluate various options to invest.

One of the main attractions of a CFD is that you do not need to hold the asset and therefore you do not need large sums of money.

Stockbroking: What Does it Mean and Imply

The Internet, particularly the ability to trade in stock online has been instrumental in changing how stockbroking is carried out.

No matter how you may dislike stockbroking firms for their stiff upper lip attitude you need a stock broker of some sort to buy and sell securities regardless of the market you want to deal in. the first and foremost thing is thus to find a reputable stockbroking firm. Although stock brokers are probably hated as much as people hate lawyers, there are still many brokerages that have the interest of their clients as their first priority.

Stockbroking is the business and process of dealing in securities in a stock exchange. Going by that definition any entity that offers trading in over-the-counter products such as CFDs and forex is technically not a stockbroking firm.

Although, commonly referred to as brokers, these entities are primarily dealers and cannot be said to be involved in stocking broking activities. Both CFDs and forex are traded directly between two principals, you and the provider or dealer (the so-called broker). There is no broker and no exchange is involved in the transaction. Whatever hedging that the dealer has to do, is done by him on his own behalf in the relative exchange (in case of shares and commodities) and interbank foreign exchange market (in case of forex).

All this has been made possible by online trading. Online trading is really why it is now possible for the individual trader to trade in forex, something that was in the domain of only banks and large financial institutions. The ability to trade online is also the reason why newer derivative products such as CFDs are appearing in financial markets.

Understanding Margin Lending

Margin lending implies providing traders with the ability of controlling bigger positions than the balance in their trading account. It is tantamount to lending money without collateral and traders have to pay some interest if positions are carried overnight. Margin lending is common tool in forex trading and CFD trading. Both systems are based on spread betting and owe their popularity to the leveraged trading, commonly known as margin lending. Leverages can be as big as in the ratio of 250:1 in the case of forex trading meaning that a trade of the value of 250 dollars can be placed with only one dollar in the account. In CFD trading, margins can be as low as 5%, meaning that a trader pays only 5% of the total value of the contract. There is no collateral involved but the system works extremely efficiently and advantageous to both the parties involved; the trader and the broker.

It is actually a risk free loan of sorts because the moment the market moves against the trader’s position and there is not enough balance in the account to cover losses, the system alerts the traders to deposit more money in the account. If the trader fails to do so, the system automatically closes the position.

It is true that margin lending allows traders to make money quick if the market moves favourable to the position taken by the trader. However, the opposite is also true. The reality is that it can also prove to be a one-way ticket to the poor house. It is thus important to understand margin lending in its true perspective and trade with caution.

Do Managed Funds Make Sense

To understand the meaning of managed funds, it is necessary to understand what is meant by active portfolio management.

Active management of a portfolio is an attempt to get better returns than would be otherwise possible by investing in an investment benchmark index. In simple language, manager of a managed fund subscribes to the theory that it is possible to outperform an index by rotating investments frequently; buying when the market is declining and selling when it is up. Index funds or passively managed funds, on the other hand, are based on the theory that it is next to impossible to outperform the benchmark market index.

There is also another aspect involved in the debate between managed funds and passive funds. Those in favour of active management profess that market inefficiencies can be exploited by buying undervalued and short selling overvalued securities. The other side of the story is that markets always discount information that is readily available and there is no way that returns more than the average market return can be achieved in the long run. Proponents of passive funds are of the opinion that active management actually lowers returns due to the involvement of commissions for churning portfolios.Managed funds should also be viewed in the backdrop of how active management in defined. Some managers would convert totally to cash or employ hedging techniques in a declining market while others will only make minor adjustments in the portfolio. The performance of a managed fund thus depends largely on the manager’s skills.

The point to be noted is that passive funds comprise of only 20% of all mutual funds. The balance 80% are managed funds having portfolios similar to various indices and rarely outperform the index they resemble.

CFD Tracker

CFD tracker refers to a special type of account with a CFD provider. A CFD tracker account enables the trader to minimise transaction cost by choosing the right level of leverage or financing.

Before we move to defining a CFD tracker account, it would be better to understand CFDs in detail. We all know that a CFD is a derivative product that may be based on a company’s stock, currency pair, commodity or index. It is a leveraged system of trading where a trader can place high-value trades with a very small capital outlay, sometimes with only 5% of the value of the contract. The balance is financed or loaned by the CFD provider.

Actually, this is one of the major reasons that CFDs have become extremely popular in Australia despite being a relatively new derivate product. However, what is not talked about much is the fact of interest charged on the balance amount if the trader carries a trade overnight. Howsoever small the interest rate may be, it does add to the cost. A CFD tracker is actually meant to restrict interest costs so that a winning does not turn into a losing trade.

CFD tracker allows investors to choose the level of borrowing and choose exactly how much financing they want in each trade, anything from 0 to 99%. This can be of great value to investors who normally have a long term time horizon while trading. Another advantage is that it allows traders to invest in a fraction (up to 1/1000th of a unit) of a share or a specific monetary value.

Stockbroker Is Different From a Provider Of CFDs In Stocks

Like it or not, you need a stockbroker of some sort to be able to buy or sell equities. Nevertheless, the dramatic change of scene brought about by the Internet has provided traders with a number of options in regard to the type of stockbroker they choose to deal with.

It is necessary to deal with a stockbroker because you cannot deal directly with the stock exchange. The stockbroker charges a commission on each trade for this service. Being an extremely competitive market, most brokers also offer certain value added services such as supplying account holders with market news and analysis, annual reports and buying and selling tips.

The Internet has enabled online trading, which has been instrumental in changing the face of financial markets and opening up the new markets for individual traders. For example, the foreign exchange (forex) market, which was at one time reserved for banks and large financial institutions, is now open to the small individual investors. In addition, it has also enabled the introduction of new products such as CFDs. CFD or contract for difference, is a tradable instrument whose price is based on the value of underlying assets including equities.

A CFD with a company’s stock as the underlying asset means that traders can benefit from price movement in stocks without having to deal with a broker. Both forex and CFDs are over-the-counter markets. Trades are directly between two principals without the necessity of routing transactions through a central agency like a stock exchange. This has prompted many stockbroking firms to take on the role of forex dealers and CFD providers. However, being an unregulated market, it is advisable that beginners check the difference between a stockbroker and CFD provider as scams in financial markets are not unknown.

CFD Providers

Both CFD broker and a stock broker do the same thing; allow you to trade in stocks. Then why is that CFD brokers are often called CFD providers but stock brokers are never called stock providers

The basic reason is that stock brokers are agents who communicate with the stock exchange on behalf of their clients. CFD providers are principals and counterparty to the trade initiated by you. When traders buy, CFD providers themselves are the sellers. Whereas, traders can buy on a stock exchanges only if there are sellers ready to sell in the market. If there are no sellers, you cannot buy in the stock market. It is another matter that if there are no sellers in the market for the underlying share of a CFD, CFD providers may not offer it to traders for buying unless they are ready to take the risk. This is because they have to hedge their bets in the stock exchange by placing counter trades; if they sell Rio Tinto CFD comprising of 100 shares, they have to buy 100 shares to manage their risk.

CFD providers are a part of a larger over-the-counter market and their activity is not limited to share CFDs. Apart from shares, a typical CFD provider would offer the ability to trade in forex, indices and commodities across global markets.

The CFD market is generally unregulated and it is incumbent on traders, especially beginners to be careful while choosing a CFD provider. Try not to believe those who indulge in aggressive marketing, make unrealistic claims that look too good to be true.

Difference between a Stock Broker and CFD Broker

CFD broker is actually a misnomer because technically he is a principal and not an agent. The reason for this is that in the CFD market trades are placed directly between a dealer, commonly known as a CFD broker and a trader. However, in certain cases there may be a broker acting on behalf of a CFD provider.

Regardless of whether we call him a broker or dealer, the job profile is the same as a traditional broker. The difference is that stock broker is an agent who acts as a go-between you and the stock exchange and earns through the commission he charges on each trade. A CFD broker, on the other hand, does not charge a commission but earns his profit from spreads. A spread is the difference between the rate at which he sells a CFD and the rate at which he buys.

A stock broker does not carry any risk. He will allow trades only of as much value as there is money in the trading account of a client. A CFD broker, on the other hand, is counterparty in the contract and must cover his risk by placing counter trades in the market pertaining to the underlying asset. For example, if you buy a Telstra CFD worth 100 shares, the CFD provider will sell 100 Telstra shares in the stock market at the current prevailing price to hedge his risk.

A CFD broker provides traders with the ability to open, close and manage market positions through a web-based trading platform. A stock broker may however do the same through proprietary software made available for download to a client’s computer.

Pluses and Minuses of Trading in CFDs

CFDs are a relatively new product in the Australian markets. Trading in CFDs has many advantages such as lower margin requirements, simple pricing, easy access to global markets, the ability to short sell, absence of day trading rules and little or no commissions and transaction fees. Actually, CFD is the latest blue eyed boy of the market.

CFD refers to contract for difference, a tradable product where settlements are done on the basis of difference between the closing and opening values of the trade. It relates to an underlying asset and the only thing that matters is the price difference. This means that prior ownership is not necessary and traders can profit by short selling if they are bearish on the underlying asset.

However, despite so many advantages, each trader must weigh the pluses and minuses of CFD trading and proceed accordingly. There are certain disadvantages of CFD trading that have to be taken into account before settling on any trading plan.

CFDs are traded on spreads, the difference between the price at which providers of CFDs sell and buy a CFD. Having to pay the spread on entry and exit means that traders cannot benefit from small move. The spread reduces the profit from winning trades and increases the loss in losing trades by a small amount. If there are commissions and fees and regulations in stock markets, providers of CFDs have their way of cutting down profits of traders with larger spreads.

Another minus point of trading in CFDs is that the CFD market is not as regulated as the stock market is. While there are many reputable CFD providers, being an over-the-counter market, traders still need to be careful while selecting whom to trade with.

CFD and Stock Options

Apart from trading directly in equities, traders have the option of participating in another way as well; they can trade in derivatives instead. Option trading is one of the popular derivatives and has been quite popular with experienced traders. While options have been there since long, many beginners are not familiar with CFD, a derivative product that is relatively new to the Australian markets.

A CFD or contract for difference provides an option to traders to trade in stocks or any other financial instrument in the market without ownership. For example, you can trade a Telstra CFD without having to buy its shares.

Contract for difference is an agreement for paying or receiving the difference between the closing price of the underlying asset and the price at the time the contract was entered into. Every CFD has an underlying asset. It could be a share, commodity, currency pair or an index.

Many investors often ask how it is different from trading options. The primary difference and also the reason why it is preferred over option trading is the simplicity of its pricing. The primary feature of option trading is the time premium attached to it. The premium decays as it nears the expiry date. A contract for difference reflects only the price of the underlying stock; there is no time value attached and no premium to decay. Moreover, CFDs are available for a wide range of underlying assets.

However, the element of risk is the same as in stock and forex trading. Since it employs a high level of leverage, the risk of losing money is as great as the increased potential for profit should the markets move adversely. It is thus recommended that investors be careful while trading in CFDs.

Trading in the Global Markets

Trading is not a thing that everyone can do. It requires a lot of patience, understanding, and ability to take losses and also take a lot of pressure. Trading in the global markets requires an even higher level of understanding.

When you trade in the global markets you need to ensure that you choose the area that you want to trade in. you can choose to trade in the global markets via currencies, commodities or buying stock in the national exchange of other countries as well. Spreading your bets too thin in the global markets may mean that you are not able to obtain a deep understanding of any one area.

The manner in which you should step into the global markets is to choose one type of asset. For example you could decide to trade in the global markets in currencies. For this you would need to understand the underlying factors that affect currencies fundamentally. You will also need to know how to read charts so that you are able to invest in the global markets intelligently.

On the other hand, if you decide to delve into commodities in the global markets, you may need to learn a lot more about exports and imports in order to figure out the manner in which they can move.

Irrespective of the kind of asset that you choose or the countries that you want to deal in , you will need to study the specific global markets in detail so that you do not make shots in the dark.

What Kind of CFD Training Do You Need?

CFD is a derivative financial tool and is a specific kind of trading that you can choose to invest your monies in. it is a Contract for Difference between two parties where each agrees to pay the difference between the opening price and the closing value of the asset in question. It is not necessary for a CFD trader to trade on a rising stock alone. 

Since CFD trading is different from regular trading, there is a need to ensure that you understand the specific terms that are used. This is why CFD training is an essential aspect of starting off in the market. You may want to choose a good CFD training curse before you actually start trading in the live markets.

In most cases, a CFD training course has a preliminary basic theoretical course that can help you understand the fundamentals of the markets. This CFD training module is likely to include aspects such as terms used, basic strategies, laws and rules and other such essential aspects.

The more interesting aspect of CFD training is when the course offers you a platform that you can use to trade in a dummy manner. What this means is that while you trade using real figures in the market, you do not really spend any real money.

CFD training also helps you understand the manner in which you should use leverage and the way in which you can always ensure that you are on top of the game in the CFD markets.

Questions to Ask CFD Providers Before Choosing One

Choosing from the many CFD providers that you are likely to encounter in the market these days is an important task that you should not take lightly. It is not recommended that you change CFD providers too frequently because a long term partnership with them can be extremely beneficial for you as a trader.

This is why it is important that you know the specific questions that you need to ask CFD providers during the process of evaluation so that you are able to make the right choice in the first place.

The first thing that you need to know is the amount of time the CFD providers have been in the market. There are many people who want to start trading in the CFD markets and therefore there are also a lot of new CFD providers that have recently incorporated themselves.

Since you are starting off in CFD trading, you need to check the amount of money that these CFD providers expect you to invest as the minimum amount. This is a number that you will see varies drastically across CFD providers and therefore you may have a large number of CFD providers dropping from the list mainly because they require large sums of money to open an account.

You must know the place where the CFD providers keep their client’s money. If you know that the CFD providers that you are evaluating associate with reputed banks and financial institutions, it is greatly assuring. Lastly, do check the markets that the CFD providers allow you to trade in.

Choosing Stockbroking as a Career in Australia

When you choose stockbroking as a career in Australia, you choose to be part of a fast paced industry that will never really let you say that you have become bored with your job. The dynamics that are involved in stockbroking are able to keep some of the most active people on their feet at all times.

However, stockbroking is not easy. It involved using other people’s monies and investing them and therefore involves a lot of pressure too. Make sure that you study what it takes to be a stockbroker before you set out into the field of stockbroking in Australia.

To start with, you should have taken some course in math, economics and business and also have a great score in these subjects to be able to qualify for stockbroking. There are essentially two ways in which you can get into stockbroking after that.

The first involves studying in a university for a minimum of three years where you understand all about stockbroking and the second is to opt for vocational education and training for two years. The latter option allows you to earn a stipend as you learn the tricks of the trade.

Some of the universities in Australia that offer courses that help you understand stockbroking better include the Macquarie University, the University of NSW, the Sydney University, the University of Technology Sydney, the Australian National University and the University of Melbourne. You can be the holder of a diploma in finance and applied investments from Financial Services Institute of Australasia (FINSIA) post completion.

Tips for Online Share Trading

There are too many things that one needs to keep in mind when one starts to use online share trading. While there is a whole host of strategies that you will need to learn, terms that you will need to internalize and more, here are some tips that can help you be successful in online share trading.  

- It is essential that you keep your phone lines accessible to brokers. Choose an online share trading broker that provides you this option since the trading platform can get extremely clogged during the peak hours. 

- Understand that many online share trading brokers offer a discount for frequent traders in terms of transaction fee. Make sure that you ask for it to benefit from the offer.

- Another thing that you need to be sure of is about the minimum amount that you need to maintain in the share trading account. In case the minimum amount is too large, you might want to look at other options too.

- Do not succumb to any kind of off-market offers to sell your shares. There are many cons that have been uncovered where those who are new at share trading lose their shares at a loss so that they can be sold at a profit in the market. 

- If you want to play in the international markets after some time, choose a share trading broker that will allow access to the international markets. It is not recommended that you change the broker from time to time.

Advantages of CFD Trading

As in the case of any kind of investment or trading tool, CFD trading also has its share of advantages. However, there are also some aspects of CFD trading that you may need to watch out for. Before you start to think of the things that you need to be careful when engaging in CFD trading, here are some great reasons why CFD trading is a great option.

Even though blue chip stocks may give you a fair amount of gain in the long term, the fact is that the whole buy is also extremely high risk too. Choosing penny stocks instead is also not a great strategy. The fact that CFD trading provides you with a fair amount of liquidity due to the leverage is a great factor to consider.

While trading short can be an issue in some kinds of assets, markets and exchanges, there is never an issue in trading long or short when it comes to CFD trading.

It is also possible for a trader to indulge in CFD trading in a variety of products like forex and foreign currencies, commodities, energies, metals, rates and bonds and stocks too. This means that you can choose from a large variety if you want to or stick to one type of asset and gain expertise in it.

While options have an expiry date, there is no expiry date when you choose CFD trading. There is the option of holding onto a position if you feel that the asset has more upside to it.

Reducing the Risk of Contracts for Difference

Every kind of investment carries with it some kind or amount of risk and Contracts For Difference are no exception. In fact, they could be considered as a high risk investment because you can easily lose more than you invest. However, there are ways to mitigate this risk somewhat and one particular way is to use what is known as a Stop Loss Order.

The Stop Loss Order can be set to whatever you choose. For instance you may buy cfds at $3.00 each and set the Stop Loss Order at $2.60. A stop loss order signals the cfd provider to close your position so that you do not sustain further loss. Unfortunately such stop loss orders can be slow in going through if there is a rush of like orders. And in the case of a dramatic and quick fall where liquidity is in short supply, you may still lose a great deal more than you intended. This is more of a problem on equity prices than indices and currencies that usually experience very active trading.

However you can also have what is known as a Guaranteed Stop Loss Order (GSLO), if your cfd provider offers it. You have to pay an additional charge for this benefit and there are certain restrictions imposed, but it is better than being subject to large losses if the market moves against your plan. So if you are planning to get into investing with cfds it is wise to find out all about how you can best reduce the risks inherent in such a product.

What is a CFD?

CFD stands for Contract for Difference in the financial markets. They can also be referred to as financial derivatives because they are a contract between the buyer and a seller with regards to the asset under question at the time of signing up the contract and the time decided when the payments shall be made. This is also called the term of the CFD. 

The seller pays to the buyer if the difference is positive. However, in case the difference between the current value of the asset and the value at the time when the contract finishes is negative, the buyer needs to pay the seller. 

CFD kind of trading is done in various countries including Australia. Some of the other countries include UK, Hong Kong, Poland, Switzerland, Italy, Singapore and Canada. 

One of the great advantages of CFD trading is that they work on the principle of margin. This means that the trader gets a leverage wherein you can make a small deposit and are allowed to trade for sums that are multiples of the amounts. 

Most of the times, a CFD is traded over the counter with the help of a broker or market maker. These are called CFD providers and they help in defining the terms of the contract and the margin rates too. In most cases, the market maker also decides the kind of instrument that is used to trade on.

While a CFD can be compared to the futures and options market in many ways, a CFD does not have an expiry date and therefore there is no chance of price decay.