What is CFD?

CFD (Contract for difference) is a derivative contract, which can have any financial instrument as a base (share, obligation and another security, and, furthermore, derivatives, such as commodity or index futures, etc.)

     Contract for difference is an agreement between parties for the difference between contract’s buy and sell prices to be paid. In case, contract price increases during the transaction conduction, a seller pays a buyer the difference. In case the price decreases, the buyer pays it to the seller. Thus, CFD allows earning on increase and decrease of contract basic instruments’ prices. Furthermore, CFD has a low entrance requirements, by virtue of low margin requirements and possibility to trade starting from 0,1 of market contract.

With MasterForex you can trade CFD and have a profit if:

•Shares market rises or falls, using individual shares CFD or stock index futures CFD;

•Prices for the most popular world commodities change, using commodities futures CFD;

•There is upturn/downturn of debt market situation, using debenture issue futures CFD and interbank interest rate futures CFD;

•You implement more complicated strategies using several instruments combined.

List of all instruments and parameters of each of them can be found on the Contract specifications page.

CFD trading features

• Credit leverage peculiarities

  Margin required for CFD instruments trading does not depend on leverage set for client’s account. Margin for CFD instruments is set in the following way:

  •For shares CFD it is 10% of opened position volume (lot volume*100 shares*opening price). Thus, leverage for shares is 1:10, but such relatively low credit leverage doesn’t make this instrument less interesting for trader, for shares are far more volatile in comparison with currency pairs;

  •For futures CFD margin is set individually for each contract, this information can also be found in the contract specification. For instance, for Light sweet oil futures CFD margin is $ 3200per 1 lot, for EURO STOXX 50 index futures CFD margin is € 1 200. In that case margin will be recalculated into dollars (USD) at the current exchange rate.

  Taking into consideration that margin is calculated individually for each contract, a credit leverage is calculated individually as well.

• Trading time peculiarity

  Trading time is specified in the contract specifications. For instance, trading time for American shares CFD is from 16.30 till 23.00 (GMT+2), futures CFD trading time is set individually.

• Spread

  For all CFD instruments market spread is set. Considering that MasterForex provides the most liquid instruments, spread for them is minimal.

• Trading commission
  
  
  • For shares CFD commission is 0.12% of contract volume.
    Commission = lot volume * 100 * open price * 0.12%
  • For futures CFD the commission is $13 per 1 lot.

  Commentary: in both cases the commission is charged only once at the transaction opening.

• Futures CFD expiration.

  CFD Futures is a forward contract. It means that any instrument can be traded during a certain period of time and by the end of this period all positions must be closed.

  To watch general price trends and to make trading easier, instruments with constant names are used regardless the current contract.

  By the end of the trading period of each contract all positions must be closed. If they stay opened by the end of the day, all positions are closed automatically at the current price. Next trading day trade for the next contract of this symbol is opened.

  The list of contracts can be found in Contract specification where also the first and the last trading days are specified.

Transactions examples

• Shares CFD.

  Let’s say, it is expected that Coca Cola shares will rise. In the trading system current ask price is $61.20, bid price – $61.19. 300 shares (3 lots) purchase occurs at the current price $61.20:

  a). KO Buy 300 shares (3 lots) at 61.20.

  Let’s say, after two hours the ask price has increased and now equals $61.57 ask price and $61.56 bid price. In order to gain profit we sell all shares that were bought before at the current price $61.56.

  b). KO Sell 300 shares (3 lots) at $61.56.

  Thus, profit per each share is 36 cents ($61.56 – $61.20), form 300 shares profit is $108.

  MasterForex charges commission 0.12 % of contract volume for shares CFD trading. Commission for this transaction will be charged at the opening in the amount of $22.03 ($61.20 * 300 * 0.12%). Thus, financial result for the transaction will be $85.97 ($108 - $22.03).

• Commodities futures CFD.

  Let’s say, oil prices are expected to fall. In trading platform prices for Light sweet oil futures CFD with expiration date in December 2010 is $81.43 (Ask price) and $81.42 (Bid price). The decision is made to sell 0.5 of contract at the current price $81.42:

  a). CLZ0 Sell 0.5 lots at $81.42

  The next day decision is made to close the position. When the ask price reaches $80.23 and bid price reaches $80.22, the position is closed at the current price $80.23.

  b). CLZ0 Buy 0.5 lots at $80.23

  Transaction result can be calculated in two ways:

  • From the contract, which is 1000 oil barrels for the instrument:
    1000 * 0.5 * (81.42 – 80.23) = $595; (contract size * lots * (buy – sell));
  • From tick size, which is specified in the contract specifications (for the instrument tick size = 0,1, value is $10):
    0.5 * (($81.42 - $80.23) / 0.01) * $10 = $595; (lots*((buy – sell)/tick size)*tick price).

Commodities futures CFD trading is also charged commission, but it is fixed and equals $14,75 per lot (is charged at the position opening).