Currency & CFD Trading

  • What are the costs of CFD Trading?

    Spread: When trading CFDs you must pay the spread, which is the difference between the buy and sell price. You enter a buy trade using the buy price quoted and exit using the sell price. The narrower the spread, the less the price needs to move in your favour before you start to make a profit, or if the price moves against you, a loss. We offer consistently competitive spreads.

    Holding costs: at the end of each trading day (at 5pm New York time), any positions open in your account may be subject to a charge called a ‘holding cost’. The holding cost can be positive or negative depending on the direction of your position and the applicable holding rate.

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  • How do I trade CFDs with Fortrade?

    We set a price for a contract based on the underlying market, which you can buy or sell.

    With each market you are given a ‘buy’ and ‘sell’ price either side of the underlying market price. You can trade on a market to go up (known as ‘buying’ or ‘going long’), or you can trade on it to go down (known as ‘selling’ or ‘going short’).

    Once you open your trade, you’ll receive a confirmation message to show that it has been accepted. Trades are occasionally rejected, but the vast majority go through without any problems. Check the details on your confirmation message carefully to make sure the trade is as you intended.

    Your open trade will now appear in the ‘open positions’ pane in our trading platform. All the time your position is open, you’ll be able to see your profit or loss by checking the profit/loss column.

    When you decide to close your position and collect your profits. To do this, you simply sell the same number of contracts as you bought initially.

    The simplest way of doing this is to bring up a ‘close position’ screen. When you click on ‘sell’, you’ll receive another confirmation to let you know that you’ve sold that number of contracts.

    Risk

    CFDs do carry risk – if the market moves against you, you lose money. And because CFDs are leveraged products, you could lose more than your deposit.

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  • What is Hedging with CFDs?

    Unlike some other forms of trading, when it comes to CFDs traders using the Fortrade platform traders have the ability to hedge their trades, which can be beneficial when it comes to limiting potential losses.

    For example, let’s say that I currently have an open position on Dollar/Yen – I ‘went long’ buying the Dollar in the expectation that USD would strengthen against the Japanese currency. However, I’m now having second thoughts – not enough to make me want to close my trade, but sufficient doubt to make me slightly uncertain that my hoped-for currency strengthening will occur.

    In other forms of trading, I would have two choices; close the trade now or keep the trade open and cope with the uncertainty. However, with a CFD I can simultaneously open another Dollar/Yen position in which I short the Dollar – going the opposite way to my original trade, which is still open. Traders should keep in mind that CFDs can only be hedged using the Fortrade platform.

    If the currency pair subsequently moves the other way to my original trade – with the Dollar falling against the Yen – I’ll still be able to salvage something from the situation, because my hedge will then take effect.

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  • How to hedge a Trading Portfolio using CFDs?

    If you have already invested in an existing portfolio of physical shares with another broker and you think they may lose some of their value over the short term, you can hedge your physical shares using CFDs. By short selling the same shares as CFDs, you can try and make a profit from the short-term downtrend to offset any loss from your existing portfolio.

    For example, say you hold £5000 worth of physical ABC Corp shares in your portfolio; you could hold a short position or short sell the equivalent value of ABC Corp with CFDs. Then, if ABC Corp’s share price falls in the underlying market, the loss in value of your physical share portfolio could potentially be offset by the profit made on your short selling CFD trade. You could then close out your CFD trade to secure your profit as the short-term downtrend comes to an end and the value of your physical shares starts to rise again.

     

    Using CFDs to hedge physical share portfolios is a popular strategy for many investors, especially in volatile markets.

    CFD Trade Example

    So, how exactly does one trade a CFD? Let’s take a look at an example of a CFD trade using the popularly traded DAX 30 index as an example;

    In the following theoretical example, the DAX is currently trading at a level of 9610.5/9611.5, giving me the option of selling the German index at the 9610.5 level or buying at 9611.5. I decide to buy £5 of the DAX at that 9611.5 level, and my nominal risk in this instance would be worked out as follows;

    (Level I’m buying at x the amount I’m buying)

    So in this case the nominal risk would be;

    9611.5 x 5 = 48057.5

    £48,057.50 is the maximum amount of money I would stand to lose if the DAX dropped from its current 9611.5 level to zero.

    CFDs and Leverage

    As a form of trading involving leverage, instead of having to put down the cost of the trade in its entirety (at 9611.5 x 5 that would cost £48,057.50, the same as my nominal risk) I only need to put in a small percentage of the overall value to initiate the trade. We work this out as a percentage of the nominal risk – if the margin is 1%, then 48,057.50/100 = 480.575. Therefore, rounding upwards by a penny, £480.58 is the amount needed to initiate the trade.

    If, however, I had decided to sell £5 of the DAX instead of buying it, the price of my trade would be as follows;

    9610.5 x 5 = £48,052.5

    The amount I would need to put into my trade would therefore be 1% of that, meaning £480.53

    Traders are advised to remember that increasing leverage increases risk.

    CFD Trading Results

    Going back to the scenario where I bought £5 rather than sold, if the DAX subsequently moves up to a level of 9613.5/9614.5 and I decide that this would be a good point for me to exit the trade, I would work out the profit on my trade as follows; the amount I bought x the number of points that the trade has moved in my favour.

    In this case my profit would therefore be 5 x 2, meaning that I would make a profit of £10 on the trade.

    Alternatively, had I sold £5 of the DAX at the 9610.5 level and then closed the trade at that 9613.5/9614.5 level, my loss would be 5 x 4, seeing as the price of my closing trade would be four points higher than when I opened it. In this case, my loss on the trade would be £20.

    If however, the DAX fell from 9610.5/9611.5 to 9608.5/9609.5 – had I bought £5 of the DAX at the original level my loss would be calculated as follows; the amount I bought x the number of points that the trade has moved against me.

    In this instance my loss would be 5 x 3, meaning that I would make a loss of £15. On the other hand, if I had sold £5 of the DAX at the original level then my profit would be 5 x 1, giving me a profit of £5.

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  • What is a forex swap and why does it happen?

    Forex swap is the overnight charge/credit amount for an open position.
    The amount reflects the interest rate difference between the central banks (based on market rates and spreads) of the two assets involved.
    Swaps are credited or debited once for each day of the week, with the exception of Wednesday, on which they are credited or debited 3 times their regular amount.

    Swap charges are released on a weekly basis by the financial institutes which Fortrade works with, and are calculated and determined according to various risk management criteria and market conditions.

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  • How is a forex swap calculated?

    The swap premium is calculated in the following manner:

    Pip Value (Depending On Trade Size) * swap rate in Pips * Number of Nights = Swap charge/credit

    Forex Example:
    You open a short position (Sell) on EUR/USD for 1 lot with an account based in USD:

    1 Lot = 100,000
    1 Pip Value = 10 USD
    Swap Rate = -3.2839 Points (equivalent to 0.32839 Pips)
    Number of Nights = 1
    Swap Premium: 10 * 0.32839 * 1 = 3.2839 USD

    CFDs Example:
    You open a long position (Buy) on Crude oil for 1 lot (1,000 barrels) with an account based in USD:

    Swap Rate = -0.3807
    1 Cent Value = 10 USD
    Number of Nights = 1
    Swap Premium: 10 * -0.3807 * 1 = -3.807 USD

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  • What is an example of a rollover and how is it calculated?

    A trader has an open SHORT or SELL position of 1,000 Crude Oil Barrels.

    The current contract closing quote is 45.50 (Bid)/45.54 (Ask) and the new contract quote is 46.50 (Bid)/46.54 (Ask).

    The difference is +1 USD i.e. the new contract is HIGHER than the old contract.

    To rollover the open short position, Fortrade automatically closes the old contract at the ask price of (since the client has a SELL position, it will be closed in the ask price, which is 45.54), and simultaneously re-opens at the new contract bid price of 46.50.

    In this example, the client is credited with the sum of 960 USD, reflecting the price difference between the two contracts. It means that the customer’s charge is equivalent to the spread of the Bid and the Ask (i.e., the new contract will be opened at the Bid price which is 46.5).

    The calculation is: (46.5 – 45.54) * 1,000 = 960 USD

    (Old Contract Closing Ask Price – New Contract Opening Bid) * Amount = Rollover Charge/Credit)

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  • Do I have to incur the cost of the rollover adjustment?

    If you do not wish to incur rollover adjustment costs, simply close any open positions before the scheduled rollover date. These dates may be found on the Rollover Rates page of our website. Clients are also advised of upcoming rollovers via notifications on the Fortrader trading platform.

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  • Where can I find Fortrade’s rollover rates?

    Rollover rates are provided and updated directly to our website. To view the most recent rollovers and an annual schedule of dates for rollovers in 2017, please click here.

    Please note, rollover charges/credits are also reflected inside the Swap column of our financial instruments’ Trading Conditions (in addition to any already existing Swap charges).

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