What to Do About Trading Forex and CFDs With the Best Brokers In 2018
The forex trading industry has been growing exponentially over time, as has the CFD field. These two instruments have become very popular for how they help people to access many global markets. People can easily enter into these fields for their investment desires as well. Meanwhile, intense licensing rules are ensuring that traders are protected and at less of a risk of harm. With this in mind, it helps to look into the forex and CFD fields and to see what makes these investment segments so unique.
The Forex Universe
The forex trading world refers to foreign exchange investments. Specifically, the industry is all about currency trading. Part of this includes getting currencies traded throughout the world based on their exchange rates.
About $5 trillion USD is spent on forex trades every day, thus making it the largest financial market in the world. It is impressive as to how the market works and how it can handle currencies in many forms.
For instance, a business may operate out of the United States and needs to import items from the United Kingdom. The forex market is used to exchange American dollars into British pounds. This is so the American business can pay the British company.
The transactions that go along on the forex market are diverse and can entail many currency pairs. But this is also a risky field of investment, so you must be aware of what you are getting out of your work.
Exchange Rates Are Vital
The main part of working with a forex trade is that it entails an exchange rate. This refers to how much money a currency is worth in another country. For instance, a certain amount of American dollars may be used to get one Canadian dollar or one Euro.
Work With a Useful Trading Plan
A convenient online platform should be utilized to help you get ready to buy and sell forex contracts. Today you can get onto a computer and quickly trade currencies as you see fit. The feature gives you extra help in finding the investments you want.
You may notice when going online that there are many platforms for you to choose from. Some places focus on providing you a little more analysis. But no matter what you do with a platform, you have to make sure the data on a currency of value is laid out well enough.
Part of this involves going long or short. You can choose to go long by buying a currency with the belief that it will gain in value in the future. You can also go short with the feeling that the currency will lose value.
- For instance, you might see that the USD/CAD pair is at 1.3055. This means that 1 USD would produce 1.3055 CAD. The CAD is the quote currency while the USD is the base.
- You might expect the base currency or the USD to grow in value. You would go long in this situation.
- You may also go short and sell the base currency if you feel it will lose its value.
So, what if you went long and bought 100 USD at 130.55 CAD? At this point, the USD/CAD pair would be 1.3055. Eventually, the currency might go up to 1.3057. This would result in the investment going up by 0.0020, which would result in a gain of 0.2 USD. This might not be worth that much, but you could sell the pair now to earn the gain.
Meanwhile, you could have gone short and sold the USD/CAD pair and then buy it back at a lower value. This would provide you with a better profit, although you would lose the value of the investment on the pair if the value ended up increasing.
What Influences the Value?
The value of the currency may be influenced the stock market, economic sanctions, and other developments. These can be difficult to predict, but it is important to notice what might come into the market.
Pips Are Vital
Pips are important to see in the forex trading field. A pip is good for 0.0001 of an exchange rate. This is the basic line of measurement used in the field. When an investment goes up by 0.0020, that means it increased by 20 pips.
Understanding the Spread in Forex Trading
The spread is a vital part of forex trading for you to look at. The spread is a difference between the bid and ask.
- The bid is the highest total price that someone will pay for getting a currency.
- The ask is the highest value that something can be sold for.
- The difference between the bid and ask is the spread. The bid will be lower than the ask.
For instance, you may buy USD/CAD at 1.3050. This would be the asking price. But you can also sell the same paid at 1.3046, the bid price. The spread, in this case, is 4 pips.
A spread will be larger when there is not enough liquidity. That is, there are not enough people who are buying or selling the currency.
The spread is produced by a broker to support the cost associated with getting a brokerage service ready. The total value may vary based on what you choose to utilize. Some fixed spreads may work in some cases to produce regular costs as the spread will always change, although all brokers will vary over what they plan on doing with getting their charges handled right.
Understanding the CFD
The CFD is a significant investment option worth exploring. A CFD is a contract for difference. You can trade based on what the difference between a strike price and a closing price is on an asset.
The CFD can be illustrated with a simple series of steps:
- You may enter a CFD based on the price of a certain stock. The CFD may have a value of about 100 USD per share.
- You could state that the price will go above 100. You would enter a long position and buy the CFD.
- You may also feel that the value will decline. You will enter a short position and sell.
- The timing of the CFD may vary based on what you choose to work with at a time.
- As the contract closes you will get a profit according to the difference between the strike price of 100 USD and the price that the contract had been sold at. This is provided that you were correct in the transaction.
- If you are incorrect, you will lose the funds or the difference between the strike price and closing price.
A CFD is an appealing choice for investing that can be found in many forms. You can use a CFD to invest in anything of note, including stocks, currencies, commodities, bonds, and much more. You can even work with cryptocurrencies depending on the trading broker you work with.
The key here is that you are getting into a contract where you state that the price will go up or fall. Meanwhile, the broker will say that the price will go in the opposite direction of whatever you feel it will move in. You must predict the change in the price correctly if you wish to get the price difference between the strike and closing prices.
So, let’s go back to that stock example. You might invest $100 with the belief that the stock at 100 USD will go up in value. So, with this in mind:
- You will use leverage at 1:100 so your $100 can be used to acquire 100 shares of that stock.
- Over time, you may notice the value of the stock is going up. The price might be gone up by $5 during a period of time.
- The $5 difference is yours. Therefore, you earn $5 per contract versus whatever you invested at the start. In this situation, you will have gotten a profit of $400.
The design of the CFD is appealing, but it is also risky. You could lose that substantial amount of money if the trade does not go in the direction you want it to enter.
What Makes CFD and Forex Trading Different?
The structure of the trading between forex and CFD investments is a vital point to notice. The forex trading field focuses on just currencies, while a CFD option works for anything of value. Also, the bid and ask values of a forex trade are not applicable in a CFD trade.
Working With a Broker
You can find many useful brokers around the world that can help you with CFD and forex trading. But when you look for a broker, you have to see that it is licensed and works with vital customer protection rules. A group must also offer a sensible platform while offering enough liquidity and support for your use. The added leverage involved may work, but the leverage point is an optional feature to find.
Regulations For Brokers
All brokers have certain regulatory standards to work with. These must be compared to figure out which group is right for your investment support needs.
In the European Union, CySEC is a vital organization. This group has become a popular entity for certification, as it works with strong consumer protection standards. Among the top groups that are regulated by CySEC include IQoption, IronFX, and Plus500.
The regulators that are available vary throughout the world. Some of the more valuable regulators you may find include the following across the globe:
United Kingdom – Financial Conduct Authority (FCA)
United States – Commodities and Futures Trading Commission (CFTC)
Australia – Australian Securities and Investment Commission (ASIC)
South Africa – Financial Service SBoard of South Africa (FSB)
Review the footers on the websites for groups from these countries to identify their regulatory standards.
Don’t forget that some smaller organizations operate as regulators within specific countries. BaFin works for XTB in Germany while Banque de France and AMF operate in France for Xtrade, XM, and OptionWeb.
Other regulatory groups around the world include the FSA in Japan, CONSOB in Italy, and the IIROC in Canada.
Key Trading Features To Find
You must look at how well a broker operates based on the functions that a broker has to offer for people:
Minimum Deposit Points
You will have to deposit a certain amount of money to start trading currencies. You may end up spending nothing through some groups like Alpari, but you may also spend $100 through 24option or $250 through CMTrading to fund your account to help you start it up.
People who add more to their accounts may become premium customers. Groups like Plus500 offer special deals like personal account managers, added leverage functions, and increased analysis features for those who spend more on those deposits.
What Can You Trade Online With a Forex or CFD Account?
The CFDs and forex contracts you work with are derivative products. Therefore, they have values that are based on certain assets. You do not have to spend lots of money to invest in specific items; you have to get onto CFDs or forex contracts to work with these investments and to earn money based on the projections that you have for getting these currencies ready.
Here is a look at what you can buy with a forex or CFD account:
Currency pairs are the most popular items to buy on the forex or CFD markets. Your profit or loss will come off of the exchange rate between two currencies.
You can work with many different currency pairs from around the world. These include pairs that entail the Euro, British pound, Japanese yen, or the American, Canadian, or Australian dollar.
The forex market is always open, what with currencies being traded throughout the entire world. Also, you may find some wide spreads on some currency pairs due to a lack of trading or volatility.
Commodities refer to various grains, metals, and other resources that are traded on the open market. You can find such commodities for trade like:
- Precious metals such as gold or platinum
- Grains like wheat or soybeans
- Crude oil, natural gas, and other energy-related compounds
- Sugar and many other commonly traded crops
While many people will buy stocks outright, some stocks are too expensive for people to buy on their own. CFD contracts are used to help people acquire a contract to buy or sell a stock over time at a specific value that may come about.
The stock CFD is about speculation and not about acquiring any actual stock. You are focusing on what the value of the stock will be. The move is perfect for when you have an interest in high-value stocks that may otherwise be a challenge for you to invest in.
A bond works as a person will be given the right to a certain total interest amount, followed by a full amount of interest as the bond matures. This works as a way for many groups to finance themselves. The ways how prices can move within bonds make them ideal for trading. But again, the value of a bond can shrink at times, thus adding to the risk. An example of this can be found in how bonds in Greece were losing value a few years ago.
An index is a market that shows how stocks are performing. For instance, the DAX 30 entails the top thirty stocks in Germany while the NASDAQ 100 focuses on high-value stocks in the United States. You can speculate that the value of the index will change over time. But you must look at how well the stocks change within an index.
An exchange-traded fund or ETF is where shares are traded on an exchange. These are noteworthy investments that you can trade CFDs on by betting on prices that will come about in the future. Leverage may be used for ETF investing desires too.
Cryptocurrencies are becoming increasingly popular with many traders. These virtual currencies are appealing for many, but at the same time they are extremely volatile and are heavily based on speculation.
Still, you may find many CFDs dedicated to popular cryptocurrencies. These include choices like Bitcoin, Ethereum, and Ripple. You can trade there through places like Plus500, Markets.com, and AvaTrade.
Be advised that you are not buying any of these currencies. You can visit a site dedicated to currency purchases like eToro if you prefer. But even then, a CFD may be better as you can trade against or for the price without having to own a currency that might experience dramatic changes in value.
Using Analytical Points
You will have to use a full analysis of your work to identify the best choices you have for trading needs. There are two forms of analysis that you may use in this case:
Technical analysis relates to how you look at market data based on chart reports, volumes, and movements. You can use these changes and a review of historic patterns to see what may develop with an investment. You can notice triangles, wedges, and other patterns that can help you to see if you should buy or sell at a time.
The fundamental approach focuses on identifying the economic forces that cause price movements to develop. You may notice that a stock had earned more money, but you would have to review factors like an inflation report, a profitability report, or GDP report among other things to identify the underlying cause. A review of this data may find some interesting results surrounding what you are getting out of the economy.
These two approaches can be tested through a demo account. The account may be utilized to identify how well you can use either approach to see what might come in your work.
Although the forex industry has become heavily regulated and is working with strict client protection standards, there are concerns in the field relating to scams. Many groups may cheat some of the people who sign up for services.
Many people might go into the investment field without preparing for anything. They might think that they can simply enter the market without worries. But in reality, those people are unaware of what they should be doing in the investment field. There may still be times though when the broker in question does not treat the investor properly.
Here are a few of the more common ways how forex trading groups might cheat the people who want to use them the most:
Not Enough Regulation
A trader may not be regulated properly in some cases. A broker might not be a member of a regulatory group, but there might also be a chance that a regulator group is not all that concerned about things. CySEC had some issues with binary options trades, but the group did not address those issues under the media brought them up.
Some regulators may also sell licenses at random without checking on what companies are doing for their clients. Groups like the FCA and ASIC have been doing well in recent time, but that does not mean every single regulatory group is going to work with the welfare of the trader in mind.
Adding Markups on Spreads
Some brokers might add a pip or two to forex spreads. These brokers are already charging commissions for their trades, so anyone who adds a pip onto a trade might end up doing things illegally. An additional spread will cause prices to become skewed while a broker takes in extra money.
The good news is that many brokers are willingly open about this, but that does not mean every broker works like this. Be aware of this when getting someone to help you out.
Forex and CFD Slippage
Many brokers will determine spreads themselves, but those who are not monitored properly might try to take advantage of their customers. They might utilize tricks like slippage, a procedure where a trader tries to enter or close a trade only for the price to slip at a certain level. The slippage may develop through the broker to where the price goes higher when trying to buy a CFD or lower when trying to sell. The gains that you may get in either situation will decline due to this issue.
You will have to watch for how an entity might try to do this and take advantage of you. This is to ensure there are no issues coming about with whatever you are trying to complete for a trade.
High Swap Rates
A swap rate is typically determined according to a central bank’s current base rate. A broker might scam the trader by adjusting that rate to one’s benefit, thus making it easier for people to lose more money in the process.
The leverage totals that a group might offer could be unreasonably high. This increases the potential for traders to have very large losses. It is through this that regulatory groups are trying to control how such charges are applied.
Be aware of what brokers that offer CFDs and forex services might do in any case. You must watch for this to ensure you do not get caught up in a trap relating to an investment.
|Brokers Name||Regulation||Min. Deposit||Spreads||Rating|
|FOREX.COM||ASIC, CySEC, MAS||$250||0.8 pips||Read Review||Open account|
|HotForex||MAS||$1000||0.8 pips||Read Review||Open account|
|AVA Trade||CySEC, SFC||$700||0.8 pips||Read Review||Open account|
|CM Trading||FSCA||$250||Read Review||Open account|
MFSA, FCA, BaFin,
ACP, Consob, CNMV,
|$250||Read Review||Open account|
Working With Leverage
Leverage is a point to notice when getting a forex trade running. Leverage works as you will multiply the amount of money you are spending at a time. For instance:
- You may get leverage of 1:10. This means that instead of getting 100 USD/CAD, you will get 1000 USD/CAD.
- The leverage will result in a larger possible profit depending on what develops. When the USD/CAD increases by 0.0020 when you go long, you are making a 2 USD profit instead of a 0.2 USD gain.
- You can also lose more money if the trade does not work accordingly. If the USD/CAD goes down by 0.0020, you will lose 2 USD.
- If you lose too much on your investment, a margin call will be declared. The issue means you cannot trade any further unless you deposit more money. In some cases, the margin call might require you to close the investment that you put in before the investment can lose any more money.
The use of leverage is intriguing for giving you the chance to make more on an investment. But you must look at how the leverage you take out works so you will not be at risk of losing more than what you can afford.
|Broker Name||Min. Deposit||Trustworthy||Rating||Trade||Review|
Review the Trading Platform
The trading platform you use should be checked based on how it is laid out. You should have a chart that lists how an asset is performing. The display needs a clear readout and should provide you with details on the history of an investment.
You have many trading platforms to work with. The MetaTrader 4 and 5 platforms are among the most popular ones. These downloadable programs let you review many indicators surrounding your system and even provide you with analysis tools, strategy plug-ins and the option to add automatic trading robots.
Proprietary platforms that are developed by the brokerages themselves may also be found. These would have to be downloaded and installed onto your computer for them to work.
Web-based platforms like jForex and Sirix may also be utilized. These can work on a web browser without having to download any software programs. The trading process works instantly, although this requires a consistent online connection for it to work.
Mobile apps may also be found in some cases. This is ideal for how you can act upon any changes in the market from your phone or tablet without having to rush home to your computer. This works best if you have a consistent Wi-Fi connection or a good data plan.
Check on the platform that a group works with when getting an investment ready. You can find a free demo from some groups to help you see how well a trading system may work for your efforts.