Currency trading (or foreign exchange) involves ‘buying’ one currency and ‘selling’ another simultaneously to profit from an anticipated movement in the exchange rate. The global foreign exchange market is the largest and most liquid in the world and trades around the clock. Market participants include banks, corporates and other institutions for the purposes on international trade or hedging, as well as traders – or speculators – attempting to profit from price movements.
Contracts for differences (CFDs) offer the opportunity gain exposure to anticipated price movements in an underlying asset class such as a currency, commodity, stock or index. CFDs are leveraged financial derivatives offering a large exposure to an underlying asset for a small outlay. When trading CFDs with Fortrade, you are not buying (or selling) the underlying asset, but instead opening a “long” (buy) or “short” (sell) position on that asset’s spot price.
CFDs offer a number of advantages over other alternatives, including leveraged exposure offering the potential of large returns for minimal outlay, around-the-clock trading, and easy and swift access to the market.
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CFD stands for ‘Contract for Difference’, the ‘difference’ being between the open and closing points of your trade.
Fortrade creates a CFD contract based on current market conditions which enables you to trade on the price movement of underlying financial assets. We offer CFDs on a wide range of global markets and our CFD instruments includes shares, treasuries, currency pairs, commodities and stock indices, such as the UK 100, which aggregates the price movements of all the stocks listed on the FTSE 100.
The contract will have both a ‘buy’ and ‘sell’ price and you have the option of choosing to either ‘buy’, also known as going long, or ‘sell’, known as ‘going short’. It’s important to remember you’re trading CFD contracts, not physically trading in the underlying market. While CFD product is very flexible giving you the ability to use stop losses and limits. It also requires a high level of risk management by using STOP orders.
CFDs use leverage and margins. This means you only have to put down a small deposit for a much larger market exposure. This is called ‘trading on margin’. You only need to deposit a small percentage of the full value of the trade in order to open a position.
While trading on margin allows you to magnify your returns, losses will also be magnified. Leverage comes with significant risks. Although your investment capital can go further, if the markets move in the other direction to your trade you will make a loss and the money you lose can exceed the amount you placed to make the trade. You could also lose more than your initial deposit.
Short-selling CFDs in a falling market
CFD trading enables you to sell (short) an instrument if you believe it will fall in value, with the aim of profiting from the predicted downward price move. If your prediction turns out to be correct, you can buy the instrument back at a lower price to make a profit. If you are incorrect and the value rises, you will make a loss.
To ensure you can cover any losses you might incur on your positions, Fortrade requires sufficient collateral. This collateral is typically referred to as margin. The margin available in your account will limit the size of the positions you can open.
The term leverage is often used to describe the margin requirements. For example, leverage of 50:1 corresponds to a margin requirement of 2% (1 divided by 50 is 0.02 or 2%). A 2% margin requirement means that, if you wish to open a new position, then you must have 2% of the size of that position available as margin.
For example: If a client’s Equity is currently 1,000 GBP, and he decides to open a Buy position of 100,000 GBP/USD, which the offered leverage on is 1 to 100 that reflects a margin req. of 1%.
In that case, the client must have an equity of at least 1% of 100,000 GBP (1,000 GBP) in order to open that position – if he has that amount, the trade will be opened successfully.
In case that client has less than 1,000 GBP in his equity while trying to open the same position, the transaction would not be opened, i.e., failed.
Fortrade requires a specific margin to be available in your account for each trade you enter in.
You can see Fortrade’s Margin Rates list here: https://www.fortrade.com/trading-conditions/.
You must maintain sufficient margin in your account to support your open positions.
You are responsible for monitoring your account to prevent margin closeouts.
A margin closeout will be triggered in the following circumstances:
When the Equity declines to half, or less than half the Margin Used. The Fortrade platform will try to alert customers who are signed in to the Fortrade platform with a margin call.
When the Equity falls within 50% of the used margin, The Fortrade platform will automatically liquidate all open positions at once.
Be aware: in a fast moving market, there may be little time between warnings, or there may not be sufficient time to warn you at all.
If trading is unavailable for certain open positions at the time of the margin closeout, those positions will remain open and the Fortrade platform will continue to monitor your margin requirements. When the markets reopen for the remaining open positions, another margin closeout may occur if your account remains under funded.
Take proactive measures to avoid getting a margin closeout on your account. For example,
Note: Your trade is closed at the current Fortrade rate, which may vary from your stop loss price – especially when trading resumes after periods of market closure.
For example, if you get a margin warning your options are:
For more information about Fortrade’s Trade Margin Rules, please contact our Customer Support at email@example.com.