Eynamano

24/06/2020

Contract For Difference (CFD)

A contract for difference, popularly known as a CFD is a derivative popular mostly in Europe which allows the traders to profit from price deviations of the price of the underlying asset without owning it.

In a contract for difference the two parties – the buyer and the seller take the current price of the underlying asset as a reference and make a deal without transferring ownership of the underlying asset. In case the price goes up, the seller agrees to pay the difference to the buyer (the buyer gains), and respectively if the price goes down the buyer agrees to pay the difference to the seller (the seller gains).

CFDs originally emerged in London in the 1990s as a type of equity swap. They were initially used mainly by hedge funds and institutional traders. They became very popular because they were traded on margin and were a cost-effective way to gain exposure to stocks on the London Stock Exchange, without having physical holdings. Later, CFDs were introduced to retail traders and became very popular because of the easy access and the possibility to trade on margin.

CFDs emerged as an instrument to swap single stocks but have proven to be a very effective way to gain diversified exposure to the stock market by trading a whole index instead of picking individual stocks. Right now, the most traded contracts for difference are Index CFDs, followed by commodity CFDs and single stock CFDs.

Financial Spread Bet
A spread bet is a derivative that is available to retail traders only in the United Kingdom. It is working the same way as a contract for difference, with the additional benefit that the profits realized in spread bets are exempt from capital gains tax.

Exchange-Traded Fund (ETF)
An Exchange-Traded Fund (ETF) is another popular exchange-traded security. An ETF is an alternative investment vehicle that is traded like a stock that tries to replicate a market index. It consists of a basket of securities based on an index. The basket can consist of stocks, commodities, or even bonds. For example the SPDR S&P 500 ETF (known as SPY) is an ETF that tracks the S&P 500 Index and the SPDR Gold Trust ETF (known as GLD) is an ETF which tracks the price of Gold. What is specific to ETFs is that the fund has actual holdings of the assets which it is set to track. For example, the SPY has holdings of the stocks that are constituents of the S&P 500 index and the GLD has holdings of physical gold. This means that when you buy an ETF you are actually getting hold of a fraction of the underlying assets.

WOW! That is quite a lot of instruments. What’s next?

What Is An Index?
An index is an indicator that is used to track the changes in the stock market. It is derived from the prices of a basket of stocks traded on an exchange. Usually these are the most liquid and actively traded stocks for the exchange. Any change in the prices of the stocks included in the index results in a change of the value of the index.

Indices are used by investors as a summary of the market movements. They can also be used as benchmarks for comparing the performance between different markets or sectors. Major indices are a good indicator you can check when you want to see how the market is doing. The most popular ones are:

Dow Jones Industrial Average (^DJI) – popularly known as Dow Jones or simply the Dow. This is a stock market index that measures the performance of the top 30 companies by market capitalization that are listed on the stock exchanges in the United States.

S&P 500 Index (^INX) – also known as the S&P or SP500 is another major US index. It measures the performance of the largest 500 publicly traded companies, listed on exchanges in the United States. It is one of the most followed equity indices, because it is considered to give the best representation of the US stock market.

Nasdaq Composite (^IXIC) – popularly referred to as the NASDAQ or NAS100. This is a stock market index of the stocks listed on the Nasdaq stock exchange. The composition of this index is heavily weighted towards information technology companies.

DAX Performance index (^DAX) – this is a stock market index that consists of the 30 major publicly traded companies that are traded on the Frankfurt Stock Exchange in Germany. It is commonly referred to as the DAX or DAX30.

FTSE 100 Index (^UKX) – the Financial Times Stock Exchange 100 index, also known as FTSE 100 and formally called “the Footsie” is the major stock index in the United Kingdom. It consists of the 100 companies with the highest market capitalization that are listed on the London Stock Exchange.

Nikkei 225 (^NI225) – the Nikkei 225, also known as just the Nikkei or the Nikkei Stock Average is the stock market index which represents the performance of the top 225 companies that are traded on the Tokyo stock exchange.

24/06/2020

How Can I Trade On The Markets?

There are various ways in which you can access the markets. Generally, it depends on which asset class you have decided to trade.

How Can I Trade On The Stock/Futures/Forex Market?
In order to trade on the traditional financial markets, you would need to open an account with a broker.

What Is A Broker?

A broker is a financial institution that allows you to connect to a market or an exchange to place your trades. As an intermediary the broker charges you a fee in the form of a commission or a bid-ask spread. Brokers are usually supervised by a regulator according to the jurisdiction they reside to protect their client’s assets.

Here are some important things to consider when you are looking for a broker to open your trading account.

Trading Costs – Commission Or Bid-Ask Spread
One of the first things to look at when deciding where to open your trading account are the brokerage conditions. The different brokers charge different commissions or offer different bid-ask spread.

What Is A Broker Commission?
A broker commission is a type of fee paid to a broker for handling financial transactions on a trader’s behalf. As we mentioned earlier individual traders cannot trade directly on an exchange. Instead they use the service of a broker who acts as an intermediary between the client and the exchange. The commission is the compensation which the broker receives for this service. The commission can vary in size and the way it is applied. Usually it is in the form of a predefined fee. It can be charged by deal (flat fee, regardless of the volume traded per deal), per stock or futures contract traded (x amount per stock or contract) or as a percentage of the notional value of the deal.

What Is The Bid-Ask Spread?
The bid-ask spread is the difference between the bid price and the ask price of a security. The bid-ask spread is typically the price of liquidity. Liquid markets have lower bid-ask spreads (thus they are cheaper to trade), while the spread in illiquid markets can be significant. I addition to the market spread some brokers add markup as an alternative to charging a broker commission. This way all the costs for the client are included in the spread.

Trading Tools
Nowadays most brokers provide web-based or desktop executable trading platforms. Some of them have also mobile applications or can be accessed by APIs. The most popular trading platforms for Forex trading that are not associated with a particular broker are MetaTrader 4 and MetaTrader 5. For stocks and futures trading the popularity prize goes to Trade Station and Ninja Trader. A lot of brokers have their own in-house build multi-asset trading platforms where you can trade almost every popular instrument – currency pairs, options, stocks, ETFs, futures contracts, etc.

How Can I Trade Cryptocurrencies?
If you want to start trading cryptocurrencies you have two choices. The first choice is to trade directly on a cryptocurrency exchange. If you go this way, you have to open an account in a cryptocurrency exchange and start exchanging digital currencies from your cryptocurrency wallet. Additionally if you don’t have any cryptocurrencies yet, some of the exchanges will allow you to make transfers in US dollars or other popular fiat currency. In case you are not too much into crypto wallets and want to spare yourself the technical details, your second choice is to find a conventional broker who is offering CFDs based on cryptocurrencies.

Good stuff! You now know the basics about the markets and what are the ways you can access them. We have briefly mentioned the different types of products you can trade. It is now time to learn more about each one of them.

Financial Instruments
There is a huge variety of financial instruments to choose from when you decide to start trading. In the next few paragraphs we are going to go over the most popular ones.

Stocks
Stocks or also known as shares or equities are most probably the most popular investment vehicle int the world. Almost everyone has heard about the stock market or at least has seen a movie about Wallstreet and is familiar that people can profit from trading stocks. But what exactly happens when you buy a stock?

A stock is a form of security that represents proportionate ownership of a company. When you purchase a stock, you receive a share of the equity. If the company is privately held, the equity deals are arranged directly between the parties. When a company wants to attract additional capital, it can decide to go public. This means that it should undergo an IPO (a process of Initial Public Offering) and if it is successful its shares can be listed for trading on an exchange. Once this is successful, the shares become available to the general public for trading. The market where the IPO happens is known as the primary market.

The market where normal trading activity happens is known as the secondary market.

17/10/2019

03/10/2019

Зимой такие составляющие интерьера, как уют и комфорт, приобретают особую значимость.

03/10/2019

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