Heather McLean
Heather McLean

Staying ahead of the pack - gaining exposure to Forex CFDs

Contracts For Difference (CFD) trading is a vehicle that has been designed to enable investors to open either a long or short position in a synthetic contract that moves in line with the underlying security. The ability to use leverage affords the investor the opportunity to carry out trades using only a fraction of the underlying contract value. Heather McLean looks at what makes CFD trading an extremely attractive way of gaining significant exposure to securities such as FX, without the traditional obligation to fund the entire contract value.

First Published: e-Forex Magazine 37 / Retail Forex Client / October, 2009

The FX market has for a long time been the most liquid and transparent market available to any investor globally. The sheer volume of trades, number of counterparties and depth of liquidity ensure that the spreads that are available to retail traders are incredibly tight.  Because the liquidity is so huge, the margin requirement for FX trading is typically smaller than the other products a self investor may have an interest in, such as equities or commodities for example, states Rob Woolfe, head of FX at ETX Capital. He says margins on the major currency pairs are typically 2% and lower, and minimum deal sizes on a CFD micro lot begin as low as the equivalent of $1 a tic.What is a CFD? CFDs allow a forex trader or investor to increase their exposure to the forex market through the provision of leverage offered by CFDs. A CFD allows the investor to exchange the difference between two currency pairs without actually having to buy or sell the entire amount for which exposure is sought. Investors must be...continued

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