Wednesday, April 16, 2008

First Dip into CFD

Today is my very first time trading with a CFD account. CFD stands for Contract for Difference. It is a kind of financial derivatives.

Being a first timer, it is really awe when I set foot into the market. So many windows opening in the trading tool, whilst I have not much clue what they all mean. I don't even know how much I am supposed to pay, how to know how many positions I have opened, etc, etc. Sounds really scary, right? The gurus may think I am crazy, the uninitiated may think I am 'brave'.

Luckily I have someone to guide me through. Placing orders, checking positions, everything is easy and smooth-going.

What exactly is CFD then? It is easier to explain using an example.

For example, you place a SELL order of S&P 500 index with a quantity of 1, at 1346 points. This means you 'sell' to someone at 1346, although you don't have the 'stocks', because you bet S & P 500 will drop. This also means someone pays you $1346 for your 'stocks;. Later, you buy back the 'stocks' at 1340 points, which costs you $1340. So you pay $1340, but someone pays you $1346. There is a $4 difference in price, that is your profit. Simple, isn't it? Of course, you don't aim for a $4 profit, but $4 million, or $4 billion :D

For today's test trade, I made a loss of $0.23, ok, as tuition fee, it is not too expensive. In the short term, I don't think CFD is something for me, I have a weak heart :P

No comments:

Post a Comment