CFD Trading: A No-Nonsense Guide

CFD Trading Costs

All fees pertaining to the broker will be written on the fine print, usually. This only really applies to reliable CFD brokers as unreliable ones exist out there. 

1. Spread

The price difference of the buy price and the sell price is how the spread is calculated. The way this works is a trader using a quoted buy price to enter and using the quoted sell price when leaving the trade. As the spread grows thinner, the more profit a trader makes. A trader will incur a loss if the price moves against them.

2. Overnight Costs

On the occasion that the position remains past a certain time, the trader will be debited or credited overnight funding. The position’s direction and the applicable holding rate determine the cost of this.

3. Market Data Fees

A market data subscription has to be paid for to trade and/or view CFD price data. However, these market data fees are not charged by all platforms. 

4. Commission

Commissions are only applicable to shares. A separate commission charge is asked by the broker when endeavoring to trade CFD shares. Commission fees do not exist if you trade indices, forex, gold, or bitcoin CFD.

CFD Trading Hours

There is an instrument that is always ready to trade as CFDs are merely financial tools. Below are the times that you can do CFD trading

When trading forex, index, commodity, and cryptocurrency CFDs, you may do so 24/7.

CFD Trading Risks

As with everything worth having in life, risks are ever present in trading CFDs.  Counterparty risk, client money risk, liquidity risk, and market risks are common risks in the industry. Let us enumerate these below:

1. Liquidity Risk

The current contracts that a trader has could become illiquid if the trade quota is not met on an asset at a given time. As a result, additional margin payments are requested by the trader’s  CFD provider or worst-case scenario, at inauspicious prices, your CFD provider will close the trader’s contract.

2. Client money Risk

The initial margin can be withdrawn by the CFD broker and additional margins from pooled accounts can be requested if ever the trader has agreed with the broker contractually. The CFD provider may ‘steal’ money from pooled accounts if ever his other clients fail to meet the margin agreed. This could affect returns on the initial trader.

3. Market Risk

Employing derivative assets to trade underlying assets is what CFD trading is all about in a simplistic sense. Unfortunately, if ever the market decides to go awry, this will affect the returns for traders. Other factors include newly inducted government policies, misinformation, or even alterations in the market’s conditions.

4. Counterparty Risk

A company that bestows the asset in a financial transaction is what a counterparty boils down to. Accompanied by an underlying asset, a CFD provider issues trading contracts to the trader when trading CFDs.