1) What is a CFD.
CFD is the abbreviated term for a contract for difference. A CFD is a contract between two parties to exchange the difference between the entry and exit price of a financial instrument.
At David James Markets Clients can trade Stock Indices, Oil, and Precious Metals all from one account. CFD’s are derivatives, so you never actually physically own what you are buying, instead you either profit (or make a loss) on the underlying price movement as the CFD mirrors the price of the underlying security.
As well as buying a CFD (going long) with the view that it may rise, you can also sell a CFD (going short) that you do not own, with the view that it may fall.
CFD’s are traded on margin so effectively you are trading on borrowed money. That being the case, money management and risk management are probably the two most important skills that you need to master when trading.
To reduce your risk it is strongly recommended that you use stop-losses when trading CFD’s. These are orders, set at a pre-determined price at the beginning of each trade. This stops will be activated when the price is reached and close out the position that the stop-loss is attached to, thus cancelling the risk of any further losses.
2) Can I lose more money than I deposit?
No. It is company policy to credit any account to zero in the event it goes into a loss. Therefore the maximum risk of loss is limited by the amount in your account.
3) Where do CFD prices come from?
The price is based on the relevant futures price minus a commonly used Fair Value.
4) What is a “pip”?
A pip is the increment used to account for profits and losses. It is the standard used in the Forex market, in place of “points” or “ticks”. On Forex instruments, the “pip” is the second-to-last digit in a price quote. For CFD products, the “pip” is the last digit in a price quote.
The value of a pip depends on both the CFD product that you are trading, the currency your account is denominated in, and the size of your trade. You can view the current pip value of any instrument in your account in the Dealing Rates window, in the Pip Cost.
The Pip Cost shows how much profit or loss 1 pip is worth if holding 1 CFD of that instrument. It displays in the currency your account is denominated in. Your account showsthe profits and losses in pips and automatically adjusts profits and losses into your account’s currency. You can trade stock indices in many countries without needing to keep accounts in those countries’ different currencies. The Trading Station makes all the conversions for you.