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Understanding Contracts for Difference (CFDs) using FxView: A Guide to Dispelling the Myths

2023-06-19  Uziel Udayle

ECN broker

Winner of multiple awards Fxview, an ECN broker, offers traders an introduction to Contracts for Difference (CFDs) by way of demonstrating their capabilities to harness their maximum potential.

What exactly are Contracts for Difference, and how do they function in the marketplace?

Contracts for Difference, often known as CFDs, are agreements made between a buyer and a seller in which the differences in settlement between the open and closing prices are settled in cash. These types of agreements are known as "CFDs." CFDs are derivative instruments that are derived from underlying assets such as stocks, commodities, indexes, or cryptocurrencies. CFDs allow buyers and sellers to bet on the price disparity without keeping any ownership right over the underlying asset.

In contracts for difference (CFDs), traders buy or sell a certain number of units of the asset they want to trade based on their expectations for the market. If the CFD trader believes that the price of the underlying asset will increase in the near future, then they will engage into a long position (buy), and if they believe that the price will decrease, then they will enter into a short position (sell). Profitable trading occurs when the trader's expectations and the price movement of their chosen asset are in sync with one another. On the other hand, they take a financial hit whenever their prognosis turns out to be inaccurate.


The benefits of trading CFDs with Fxview as your platform

The trading of CFDs comes with a number of benefits. The most fundamental benefit of trading CFDs is that investors can profit from price fluctuations in either direction—up or down—without having to actually own the underlying asset. Because Fxview provides traders with access to a broad range of CFD choices, including Forex, Indices, Commodities, and Stocks, traders are able to take advantage of a multitude of profitable trading opportunities at commission rates that are extremely competitive.

Trading in contracts for difference also enables investors to trade on margin and make advantage of leverage. Therefore, traders have the option of making a reduced initial payment as opposed to paying the whole value of a position and covering the remainder with funds borrowed from a lending institution. Traders are able to enhance their exposure to particular assets or market sectors by utilising leverage, which allows them to do so while committing a less amount of capital than would normally be required.

CFDs enable traders to adapt to different market situations, time periods, and risk preferences. This enables traders to modify their trading technique to meet their particular aims and trading styles. Despite the fact that CFDs are speculative, they empower traders to adapt. Fxview gives its customers the ability to tailor their leverage level to their individual risk tolerance and financial objectives by providing a range of alternatives for the amount of leverage they use, from low to high.


Managing the risk of CFD trading with Fxview

Although trading in CFDs can offer lucrative opportunities, it is vital to have a solid understanding of the risks that may be involved. The effect that leverage has on losses is one example of such a severe risk. In essence, leverage increases prospective losses in the same proportion that it magnifies potential gains through the use of the leverage. Because of this, traders need to exercise extreme caution whenever they make use of leverage in order to shield themselves from major financial losses. For instance, if the market conditions are uncertain, traders may choose to reduce their risk by selecting a lower leverage option from Fxview.

In addition, liquidity risk is another key factor to take into account because it has the potential to have a negative impact on the ability of traders to promptly execute trades at the prices they prefer. As an electronic communication network (ECN) broker, Fxview connects traders with Tier-1 liquidity providers, employs low-latency technology, and provides a choice of order-filling mechanisms (for example, Stop Loss, Take Profit, Limit Orders, and Trailing Stop), which enables clients to acquire the best possible market prices and prevent slippage.

When clients are exposed to volatile market conditions, negative balance protection that was implemented by Fxview ensures that they will not incur losses that are more than their initial investment.

related link: What Is the Difference Between an ETF and a Mutual Fund?


Using FxView to maximise your potential for profit while trading CFDs

Traders should take the following pieces of advice into consideration in order to mitigate some of the dangers involved with trading CFDs and to take full control of their trading journeys:

undertaking in-depth study and analysis. Traders are required to have a comprehensive knowledge of the underlying assets and instruments they are trading, in addition to keeping themselves current with the latest market news. This enables them to gain an understanding of the basic causes and market dynamics that can impact the price of CFDs and to make trading decisions that are influenced by this knowledge. Traders can get help with this process from Fxview's useful tools, such as reports on market analysis and a news calendar, which are accessible to them through the platform.

Setting risk management parameters. Traders should give some thought to risk management strategies including creating Trailing Stop, Stop Loss, and Take Profit orders in order to shield their cash from unforeseen shifts in market conditions. The advanced trading platforms MT4, MT5, and ActTrader that are provided by Fxview come equipped with all of the tools and features that are required to enable traders to implement the trading strategy of their choice and to control the risk exposure that is associated with that strategy.

Conducting business with a reputable broker. Frequent trading can result in significant spread fees being accumulated over time if it is not managed properly. Because of this, it is of the utmost importance to look for a broker who provides raw spreads or even low spreads (without markups). Fxview is one of the very few brokerage firms that provides raw ECN spreads, which enables traders to more easily construct profitable portfolios that are well-balanced.

Traders should also give brokers that adhere to stringent regulatory rules priority when selecting a broker in order to ensure that their funds are in safe hands. One such company is Fxview, which has been granted a licence and is regulated by CySEC, the FSC, and the FSCA, in addition to being registered with other highly regarded regulatory authorities throughout the world. As a result, it essentially shoulders the fund safety worries of its customers. Additionally, the broker is a member of the Investor Compensation Fund, which provides insurance for customer money of up to €20,000.

At a ceremony that was held in front of the fintech elite in Johannesburg, South Africa, in the beginning of May 2023, the Financial Achievements in Markets Excellency Awards presented Fxview with several prestigious accolades. These accolades include "Best ECN/STP Broker" from the UF AWARDS MEA 2023 and "Best Multi-Asset Broker Africa" from the Financial Achievements in Markets Excellency Awards.

The broker encourages traders from all walks of life to join its various trading platforms. Traders can open up new doors of opportunity and handle the complexity of the trading landscape with greater self-assurance if they take use of the potential of CFDs and collaborate with Fxview.

2023-06-19  Uziel Udayle