Trading

CFD

What is CFD Trading?

CFD trading is the activity of trading contracts for difference with a broker.  CFDs (Contract for difference) are derivative products in which you can trade on the difference between a certain asset’s set starting value and its closing value. By using a contract for difference, which is basically just a contract between a buyer and seller that specifies a certain purchase price and allows for profits or losses based on the change in the price of the underlying asset during a specified time frame, a trader can participate in a financial market with a smaller initial investment.

 

Since their introduction in the early 1990s, CFDs have become increasingly popular as investors appreciate the lower capital requirements. They allow investors to participate in markets they may not have had access to previously because of large margin requirements or regulatory issues.  CFD trading gives traders the ability to go long or short on an asset, , and in the U.K.,traders can avoid the stamp duty since CFDs are derivative products.

 

When trading CFDs you predict your chosen asset’s movement in the market. As you do in traditional trading, you Buy when your prediction is a rise in value and Sell when your prediction is a fall in value. This does not mean you are buying or selling the asset because when investing in CFDs you are investing in your right to earn from the asset’s movement not the asset itself. However, it is important to remember that you can lose your investments should the asset price move in the opposite direction from your prediction.

 

For example:
You’ve read a report on Apple that indicates the stock will plummet in the next few days. You then enter our trading platform and watch its behaviour on our live, real-time graph and decide you agree.

Do you Buy? Or Sell?

To Buy would mean the stock needs to go up higher than the Buy price.

To Sell would mean the stock needs to fall lower than the Sell price.

Has your asset risen by 2 pips beyond the predetermined criteria, or 1? If you predict a sharp change in the asset’s movement during the trade’s time frame, then trading a CFD might be your better option. However, there are risks involved, and the potential losses should also be examined.

 

How is it done?

We at ProperTrade have created a user friendly platform that makes CFD trading accessible and convenient, just follow the screen from left to right:

Remember the stakes

Enter trading platform

Choose CFD from the upper toolbar

Choose the CFD you want to trade on the leftmost column on the screen. You can use the filter to control what CFDs you see: All, Indices, Forex, Stock or Commodities.

Choose the direction you wish to invest in. The numbers within the Buy/Sell buttons represent the points needed to be passed for a successful trade. i.e. if the number in Buy is 1.1158, then your trade must be higher than 1.1158 when the trade closes to be considered a successful trade, if the trade closes lower than 1.1158 then your trade is not successful.

Choose when you wish to place the trade. To the right of the Buy/Sell column you will find the Trade/Order box. If you wish the trade to commence immediately, choose trade. If you wish for certain events to transpire for a trade to be made, and you don’t wish to physically wait for them to occur, then choose order and insert the criteria needed to be met for your trade to take place.

The graph on the right shows the asset’s movement. When in the green, its value is “In the money.” If it’s red, its value is “Out of the money.”

 

Strategies for CFDs

When you get started trading CFDs there are a few basic strategies you want to follow to make the most of your trading experience.  It’s true that trading the markets can be complicated and will seem incredibly difficult at first, but by following three strategies you can soon get up to speed and hopefully improve your trading success.

These three simple strategies are below:

 Focus on a small number of markets.  With so many different markets available to trade with CFDs you might be tempted to try them all.  This often process to be a recipe for disaster.  Instead put your focus on no more than three markets initially and you’ll be able to improve more quickly.  If you focus on a small number of markets you will have time to research each of the markets in depth each day.  You’ll be able to place small trades in at least one and perhaps all each day as well.  And with each passing day and each new trade you’ll learn more about what makes that market tick.  You’ll see what the normal volumes are, you’ll find out if the market moves more at certain times of the day, and you’ll learn which economic reports are likely to move the markets.  This is the best strategy if you want to become an expert in any given market.

Decide what timeframe is best for you.  Some traders love the excitement that comes from trading very short time frames, but others can’t stand the stress of making split second decisions, and prefer to trade longer time frames.  Decide when you begin trading if you’ll be a long term trader who focuses on weekly and monthly time frames, or a short term trader who focuses on daily, or even moves that can occur in minutes.  By utilizing this strategy you’ll be a more relaxed trader and a more confident trader as you follow your own personality traits rather than trying to fight your natural tendencies.

Have a trading plan.  It’s critically important that you don’t just jump into the markets without a plan.  Before placing any trade you should have already completed your daily research and know whether you want to go long or short, why you’re planning on going long or short, where you’ll enter and exit your trade, and how much capital you’ll risk on each trade.  By having all of this decided in advance you can avoid putting your capital at greater risk than you’re willing to accept.  You are also more likely to avoid mistakes that many traders make when they trade without a plan, most notably those related to greed and fear.

These three basic strategies are not only enough to get you started in trading CFDs, they will also serve you well for your entire trading career.  Always keep them in mind and if you stray from them focus on getting back to the basic strategies.

 

CFD – Gloassary

Here we have compiled a list of commonly used terms in Forex and CFD of Forex trading

 

Leverage:

Leverage increases your purchasing power hence enables you to gain a large exposure to a financial market while only tying up a relatively small amount of your capital.

CFDs are leveraged, which means you only have to put down a small deposit for much larger exposure.

Leverage increases your profit potential and the risk of losing your capital.

ProperTrade CFDs have a static leverage that depends on the Asset you’re trading.

 

Margin:

When trading CFDs on leverage, you must maintain a certain level of funds in your account (the necessary margin), also known as a good faith deposit. Calculating and understanding your necessary margin requirements beforehand allows you to apply good risk management and avoid any unnecessary margin calls resulting in the closing of a position due to not enough margin in your account.

The margin of ProperTrade CFDs will be the invested amount you select prior to opening the position.

Margin Call:

Margin Call refers to the situation where the broker ask for additional funds to cover losses from your lose making positions. Failure to meet margin calls will lead to automatic closing of your positions.

There are no margin calls when trading CFDs with ProperTrade but your position will automatically be closed when price reached the stop loss level.

 

Is Leveraged Trading Risky?

Even though you only put up a relatively small amount of capital to open a position (initial margin), your profit or loss is based on the full value of the position (Invested Amount * Leverage). So the amount you gain or lose might seem very high in relation to the sum you’ve invested. However, it should always be kept in mind that leverage not only magnifies your potential profits but also your potential losses. Additional information about the maximum loss or gain from each position can be found below.

 

Trading Profit and Loss Calculation:

Pip value: is an important component of the P&L calculation and will be given to you by the platform prior to opening your position.

Formulas:

Pip value for Forex (other than JPY) = (invested amount * Leverage) / open price / 10,000

Pip value for Forex where JPY is the quoted currency = (invested amount * Leverage) / open price / 10,000

Pip value for Equities and Commodities = (invested amount * Leverage) / open price / 100

Note that the pip value given by the platform is the base currency of your account.

 

Profit and Loss Formula = (pips movement * pip value) – swap charges

 

Pending Orders:

You can set pending/future orders for entering into a position when the actual price will reach your target/set price.

Buy Limit: an order to buy at a specific price that is lower than the current one.

Sell Limit: an order to sell at a specific price that is higher than the current one.

Note that there are restrictions of how close your pending order price could be from the current price

 

Take profit: is a pending order at a predetermined price to exit a profit making position.

You can set or change your take profit price (or amount) at the start or/and during the period of your position.

We recommend to check the take profit price prior to opening a position.

Note that there is a limit on the range between the open price and the take profit price.

Example:

You open a SELL position on EURUSD at 1.1208 with an invested amount of 100 EUR.

The pip value will be 3.5688 EUR and the take profit will automatically be set at 1.118 so if the price reached the take profit you will win 100 EUR (3.5688 * 28pips ≈ 100 EUR).

If you wish to decrease the take profit level further at 1.11 then the potential gain of your position will increase to (3.5688 * 108) 385.4 EUR.

 

Stop loss: is a pending order at a predetermined price to exit a loss making position.

You can set or change your take stop loss price (or amount) at the start or/and during the period of your position.

We recommend to check the stop loss price prior to opening a position.

If you change the initial stop loss level your invested amount (margin) will change also but the pip value will remain the same.

Note that there is a limit on the range between the open price and the stop loss price.

Example:

You open a SELL position on EURUSD at 1.1208 with an invested amount of 100 EUR.

The pip value will be 3.5688 EUR and the stop loss will automatically be set at 1.1236 so if the price reached the stop loss you will only lose your invested amount (3.5688 * 28pips ≈ 100 EUR).

If you wish to increase the stop loss further at 1.1250 then the risk of your position will increase to (3.5688 * 42) 150 EUR meaning that your invested amount (margin) will automatically go to 150 EUR.

Close Manually: you can close your open positions manually by pressing the close button at the right side of your open trades section.

 

Trading Costs:

Spread is the difference between the bid (sell) and ask (buy) price. The difference is presented in pips and reflects the cost of opening a position.

The related cost will be spread * pip value.

 

Swap is the interest deducted from the Profit/Loss of your position and is only charged when a position is held open overnight.

Swap charge formula: Invested amount * Leverage * swap rate / 365days.

Forex

What is Forex Trading?

Forex trading is the act of buying one currency while simultaneously selling another currency, with the aim of profiting from the changes in the values of these two currencies over time.  Of course forex trading can also lead to losses, which makes it a risky venture and one that should be examined closely before committing any actual trading capital.  One benefit of forex trading is the huge volumes traded in forex markets each day, which eliminates any liquidity issues, at least for the currencies of the largest economies.

Another benefit to forex trading is that anyone can participate with just a small initial investment.  There is a trade-off however.  The small capital requirements in trading forex are due to the use of leverage when trading forex.  This means that an investor can control $10,000 worth of currencies with an investment of as little as $25.  While this can generate profits more rapidly, it can also lead to losses more rapidly and if the traders account is small they may soon find themselves the victim of a margin call and the loss of all their trading capital.

The knowledge and skill required to successfully trade forex makes it anything but simple.  Those considering forex trading should be sure that they have sufficient capital and that they are able to withstand the risks presented by forex trading, which include the potential loss of all your trading capital.

 

Strategies for Forex

There are many things to consider when trading forex.  These choices become even more important for many individual traders because they aren’t trading forex for a living, but are rather part-time traders, with other jobs and commitments.  This can make things extremely difficult in a fast moving market like the currency markets, but there are some strategies you can follow to help you have a better chance at success when trading forex, even if you’re a part-time trader.

 

Choose a time frame to trade and focus on the most active currency pairs during that time frame.  If you’re trading full time it makes sense to trade during the U.S. session, because most USD currency pairs will be most active during this time.  Many traders won’t have this luxury however, so they need to make a plan that takes into account what currencies are most active during the times that they are trading.  Those in the U.S. who trade in the evenings may want to focus on AUD pairs.  If you’re trading later in the night (after 9pm EST or 2am GMT) you can also look at other Asian currency pairs such as the Japanese Yen, Hong Kong dollar and Singapore dollar.  If you’re a morning person and want to trade at say 4am or 5am EST your best bet is to look into the Euro and Great Britain’s Pound.  The point is, no matter when you choose to trade, your best strategy is to focus on the most active currencies during that time frame.

 

Consider trading longer time frames.  Some forex traders focus exclusively on daily and weekly charts and place trades that can last for days and weeks as well.  They claim that the market is more predictable when trading these longer time frames.  If you’re a part-time trader this may be a good strategy for you to use since you can’t always have your eye on the markets.  Even if you’re trading full-time you may want to use this strategy as it gives you the chance to analyse the markets more completely before making a trade.  It may not sound as exciting as the fast-paced world of day trading, but it can be just as successful in the long run.

 

Always have a plan when trading.  This is a strategy that applies to everyone.  It doesn’t matter if you’re a new or experienced trader, if you’re trading short or long time frames, or if you’re trading based on technical or fundamental analysis.  You will always need a plan that includes an entry and exit point, what direction you’ll trade, why you believe the market will move in the direction you choose, and a stop loss level that will take you out of the trade if it doesn’t go as planned.  This single strategy should be the backbone of your trading throughout your career.

By using strategies that increase the chance of success and decrease the chance of failure you can survive in the market long enough to gain the experience necessary to become a successful full-time trader.  Even when following these strategies, you’ll find that the forex markets are risky however, so always be prepared for losses, and have a strategy to deal with those as well as the hope for successful trades.

Cryptocurrencies

While currency in one form or another has been around for millennium, up until the 21st century it has always been in a physical form. That form may be coins, bars, or even paper currency, but there has always been a physical representation of the currency we use in our daily life to buy goods and services.  Everything changed in 2009, when Bitcoin was released as open source software that is used to create a digital currency.  A digital currency, also known as cryptocurrency, is created through the use of specialized software and is stored only in a digital form on computers and servers throughout the world.  Since then many other digital currencies have come on the scene, with even more appearing on a monthly basis.  Yet Bitcoin is still the king when it comes to digital currencies – at least for the time being.  Read on to learn more of the history behind digital currencies and the details behind some of the most popular digital currencies.


How It All Started

The idea of digital currency actually came about as far back as 1982 in a research paper published by cryptographer David Chaum.  He also formed the very first digital cash company called Digicash in 1990, but it was an idea ahead of its time and the company filed for bankruptcy in 1998.

The modern age of digital currencies began when Bitcoin was released as the very first decentralized digital currency.  Until the release of Bitcoin, any digital currencies had been centralized, but Bitcoin changed all that.  Rather than being controlled by a single source or company, Bitcoin is created and stored in a peer-to-peer networking system and relies on what is supposed to be secure cryptography for its creation through the use of digital signatures known as blockchains.

Although there have been concerns put forward regarding the creation and use of digital currencies by illegal and terrorist organizations, the movement has more recently been gaining additional support and there are now several countries and global companies who are exploring the use of blockchain technology and cryptocurrencies for use in a variety of applications.

 

Bitcoin – As mentioned above, Bitcoin was the first decentralized digital currency and the very first Bitcoin was mined, or created, in 2009. The actual identity of the creator of Bitcoin is unknown, but it was released under the name Satoshi Nakamoto, which is a pseudonym for the programmer or group of programmers who introduced Bitcoins.  The Bitcoin system is a peer-to-peer decentralized system, with transactions occurring directly between individuals.

 New Bitcoins are created through the process of mining, in which distributed computers around the world solve each block in the blockchain system. As a block is solved a new Bitcoin is added.  The system adjusts the difficulty of solving blocks every 2016 blocks, making each additional Bitcoin more difficult to be mined or created.  In this way Bitcoin has an artificial scarcity that has helped increase the price of Bitcoin dramatically since its inception.  There will only ever be 21 million Bitcoins created, which is expected to be accomplished in 2140 or thereabouts.

The price of Bitcoin has increased dramatically since its inception, but it is also considered to be extremely volatile.  In 2011 the value of one Bitcoin dropped as low as $0.30, but as of mid-2017 the value of one Bitcoin is roughly $2,400.  On 13 August 2017, Bitcoin hit an all-time high of $4,200. It has been estimated that Bitcoin’s price is 7 times as volatile as the price of gold, 8 times as volatile as the S&P 500 Index and 18 times greater than the U.S. dollar.

 Ethereum–Ethereum is another decentralized digital currency, but is also a computing platform developed for its scripting functionality. It is quite new, having gone live on July 30, 2015 with a value of $1 per Ether coin.  The value of Ethereum has recently skyrocketed, nearly hitting $400 on June 14, 2017, but has since pulled back and trades around $240 per Ethereum coin as of mid-July 2017.

 One interesting fact about Ethereum is that many corporations, financial institutions and even governments have begun developing their own systems and programs based on the Ethereum protocol.  This could be very positive for the currency, as broad adoption would be sure to increase the value of Ethereum.  Another factor of note is that Ethereum is currently seeing double the processed transactions when compared with Bitcoin.

Unlike Bitcoin, there are no plans to cap the number of Ethereum, however there are plans in place to reduce the growth (and hence inflation) of Ethereum between 0.5% and 2.0% by changing the verification of new Ethereum blocks to a proof of stake rather than proof of work.

Anyone interested in digital currency trading should certainly keep their eye on Ethereum as it promises to be vital to the growth of the digital currency economy.

 Ripple – Ripple, with a market capitalization of more than $6.5 billion, is currently the third largest digital currency by market cap, eclipsed only by Bitcoin and Ethereum. That by itself should be enough for traders to keep their eye on price movements of the Ripple cryptocurrency.  With more than 38 billion coins, called Ripples, in existence, the value of the Ripple is quite lower when compared to other major digital currencies, topping out around $0.42 per Ripple in May 2017 and trading at just $0.238 per Ripple in mid-July 2017.

 The original Ripple protocol was developed as far back as 2004, and was released as Ripplepay.com in 2005 as a financial service to provide secure payment options to members of an online community via a global network.  The current version of Ripple was developed in 2012 and was released in 2013.

Ripple differs in that it is a real-time settlement system, currency exchange and remittance network.  The Ripple network supports tokens that represent fiat currencies, other cryptocurrencies, commodities, and even frequent flyer miles or mobile plan minutes.  It is increasingly being adopted by banks as they feel it has a number of advantages over cryptocurrencies like Bitcoin, including price .  Large banks are using the Ripple protocol include UBS, Santander, and most recently SCB in Thailand.

Because of its ability to conduct transaction free cross-currency exchanges, Ripple bears watching by traders and investors.  It can be especially useful as a bridge when there is no market for a specific currency in that it will seamlessly convert any asset to the desired payment currency.  This could make the Ripple a very valuable digital currency in the near future.

 Dash–Dash has undergone several changes in its lifetime, and was once known as Darkcoin and also Xcoin. It should also not be confused with a similar digital currency known as Dashcoin.  Dash is similar to Bitcoin in some respects, but it has been engineered to use two-tier architecture in its network to provide additional features and added safety.  Users of the Dash cryptocurrency enjoy both private and instant transactions.  Dash is also the first decentralized autonomous organization, with the first Dash currency created on January 18, 2014.

 Dash has grown to a market capitalization of roughly $1.5 billion and has 7.42 million coins currently in circulation.  With a Dash coin currently worth $193.46 it is off a recent high of $209.77, but appears to be trending higher in the long term.  There is a daily turnover for Dash of over $100 million, making it a popular alternative to Bitcoin and other digital currencies.

Traders who are interested in Dash should be aware that this digital currency has one of the most active communities of any altcoin (the term altcoin is used to refer to any of the digital currencies other than Bitcoin).  Activity on the BitcoinTalk forum has reached more than 6400 pages, 133k replies, 7.9M reads.  This active community should certainly be one source of news and information that is constantly monitored by traders of Dash.

 Litecoin – This digital currency was created as a fork of Bitcoin, and as such is very close in nature to the original digital currency. There are some differences however, such as almost zero payment cost and payment transactions occurring approximately four times faster than Bitcoin.  Litecoin was created in October 2011 by a former Google employee named Charlie Lee.  Litecoin has been a success since its inception and currently has a $2.5 billion market cap, with 51.9 million coins worth around $5 each in circulation.  Litecoin hit a high of $55.46 per coin on July 5, 2017 before pulling back, although the overall trend is higher for the digital currency at this time.

 Litecoin processes blocks about four times faster than Bitcoin, and is set to release a total of 84 million Litecoins, again four times the number planned to be released for Bitcoin.  This will give Litecoin an artificial scarcity that should keep the price of Litecoin trending higher as it becomes increasingly difficult to mine the remaining Litecoins.

As one of the major digital currencies in use, Litecoin has a daily turnover of more than $130 million, traders should certainly keep an eye on Litecoin to monitor price movements and changes in market sentiment that could provide trading opportunities.


The Cryptocurrency Market

Even though the cryptocurrency market is just 8 years old, already it sees trading volumes exceeding $100 billion as of June 2017.  All of that trading comes from over 800 different digital currencies, with more entering the market every month.  Needless to say, there is vast opportunity here for those willing to accept the risk of jumping into new markets.  Because of the volatile and rapidly changing nature of the cryptocurrency markets, prospective traders should do their own research regarding current trading volumes, active digital currencies, and opportunities in the markets.

Digital currency investors may benefit from the fact that these currencies are not tied to any central bank or single country.  This means they can be traded with ease 24 hours a day, 7 days a week, and 365 days a year.  One caution for traders who are new to the cryptocurrency market is that these digital currencies move based on different factors than you are used to with traditional currencies.  Rather than reacting to central bank policy and the economic strength of a given country, these currencies react to cyber-events such as hacking, or the release of new technologies.  And because the market capitalization of most digital currencies is quite small they can also be influenced by individual investors.

Imagine buying a $100 million USD position.  Certainly it’s a large position, but it isn’t large enough to be noticeable in the billions of dollars of daily USD transactions.  This isn’t true for any of the digital currencies.  A $100 million position would be larger than the daily trading volume for all but the largest, and such a position would likely have a huge impact on the pricing and volatility of the underlying digital currency.

The cryptocurrency market is growing rapidly, but is still small compared to the global currency market.  This factor can be attractive to traders as they are on the forefront of trading in these new markets.  The only important factor to keep in mind is to remember the risks associated with trading in new and volatile markets, and understand that losses can come just as fast as profits or even quicker.

 

The above figures are not up to date. Please conduct your own research.

 

Trading Cryptocurrencies With ProperTrade

As a leading online broker, ProperTrade was one of the first to offer trading CFDs on cryptocurrencies.  With five of the most popular digital currencies currently available for trading as CFDs, we are always looking for the latest popular currency so that we can make a CFD of it available to our traders.  Our education center will help take the mystery from cryptocurrencies so you can trade CFDs with greater confidence.  And with our easy to use trading platform you’ll soon find it more accessible than ever to trade CFDs on your favorite underlying digital currency online.

The value of digital currencies tends to change very quickly. Therefore, there is no guarantee that the cryptocurrencies’ value will remain stable.  We highlight the growing popularity of the digital currencies. Yet, we warn our clients that there is a number of potential risks when dealing with CFDs on virtual currencies – the main be their inherent volatility.