Trading CFDs and futures contracts
Does not require big investment, thus traders with a modest deposit on an account can afford to work with these financial derivatives.
Futures contract is an agreement between a buyer and a seller that an asset, such as a product, currency or index, will be bought/sold at a predetermined price and date in the future. Other details (package, marking, quantity) are indicated in the futures contract specification.
Since futures contracts are standardized in terms of the validity period and contract size they can be freely traded on exchanges. Both parties have obligations to an exchange until futures are executed.
A contract of this type implies a legal agreement to buy and sell a particular commodity or financial instrument. Such a contract specifies a price and a volume of an underlying asset as well as a payment deadline. They are used in the real economy sector as the fact of delivery serves as a certain guarantee of sales and insures the parties against changes that will occur in the future in the market. Such futures contracts are most often concluded in the farm industry, for example, futures on the goods price in the next season. In case of default, the exchange imposes a penalty on the guilty party.
Futures contracts do not mean a physical delivery of an asset, but require a cash settlement between the parties in a fixed term. For example, having received a contract on oil which cost 60 euros per barrel, the contract holder will receive a profit of 10 euros if the price rises to 70 euros. Such contracts are used in trading as there is no need to deal with transportation and storage of oil. A personal computer and Internet access are sufficient for making transactions.
We suggest a popular trading instrument – a contract for difference (CFD). It is a financial derivative which enables investors to trade assets of the stock and commodity exchanges without actually owning them. The principle of trading CFDs is that a speculator buys or sells a contract for holding equities or commodity futures instead of a physical delivery of these assets. Nevertheless, a trader gains the same profits as if speculating in actual assets on those markets. However, the contract execution is simplified.
What is the difference between CFDs on futures and CFDs on equities or indices?
In effect, underlying assets of CFDs on futures are commodities. InstaForex clients are free to trade CFDs on precious metals, crude oil, natural gas, agricultural produce etc. The complete list of assets available for trading is presented on the webpage with trading instruments.
The time of trading CFDs on futures varies depending on the underlying asset. Trading popular futures contracts for difference such as gold and crude oil is available round-the-clock on various global commodities futures markets.
The time for trading goods which are niche and less popular, such as cotton or corn, is limited. At night time GMT, trading these goods is not conducted on any exchange. Among these goods there are also wood (lumber), coffee, cocoa beans, sugar, and frozen orange juice. Besides, trading these futures is seasonally adjusted.
Speaking about expiration time, CFDs on futures have some advantages comparing to classic futures contracts. The last ones close at the current market price at the moment of expiration, and it does not matter whether a deal is profitable or not. Meanwhile, CFDs on futures can be replaced by a broker to similar futures with the next expiration date before they expire. It does not make any impact upon trader’s deals and provides an opportunity to trade CFDs on futures with any expiration terms.
When working with futures CFDs, traders can get profits if they make a right projection of price movements in future. A price can go upwards or downwards – it depends on the levels of supply or demand for the asset. Several strategies have been developed to make trading futures contracts for difference more effective. Here are two of them.
Long Buy. When buying a commodity, a trader opens a long trade. To gain profits from this trade, it is necessary that the asset price rises. It is better to trade contracts on agriculture products and food within this strategy. These are not the most popular assets, but farm goods are always in demand in daily life and have rather big volumes of production. For example, it is profitable to open long-term trades on cocoa beans or corn, buying an asset at the market bottom (when the price is minimal). Thus, traders can save their capital. However, this strategy does not guarantee huge profits.
Short Sell. This type of deal is opposite to a long buy trade. In fact, traders take the same steps, but profits are generated if the asset price falls. In this case it is better to trade futures contracts on gold and silver as these assets are quite popular.
Besides these two strategies, traders can apply hedging and dual trading (if it is allowed by a broker). Trading futures CFDs is a great opportunity for both newbies and experienced traders with small initial capital. Base strategies are simple and help traders get profits without investing big sums and without actual owning of the underlying assets.
|Title||Group||Symbol||Tick size||Tick cost||Commission||Margin||Session||The nearest expiration date|
|Platinum||Metals||#PLFc||0.5||10 $||30 $||2000 $||
|Palladium||Metals||#PAFc||0.5||10 $||30 $||750 $||
|Crude Oil Light Sweet||Energy||#CLc||0.01||10 $||30 $||2000 $||
|Natural Gas||Energy||#NGc||0.001||10 $||30 $||2000 $||
|US Dollar Index||Indices||#USDXc||0.01||10 $||30 $||1750 $||
|S&P 500 Index||Indices||#SPXc||0.2||10 $||30 $||4500 $||
|Dow Jones Industrial Average||Indices||#INDUc||2||10 $||30 $||4500 $||
|NASDAQ Composite||Indices||#COMPQc||0.5||10 $||30 $||4500 $||
|FTSE 100||Indices||#FTSEc||0.5||10 $||30 $||4500 $||
|Hang Seng Index||Indices||#HSIc||2||10 $||30 $||5000 $||
|DAX 30||Indices||#DAXc||2||10 $||30 $||2000 $||
Buy-swap for all trading instruments is -0.1, Sell-swap is -0.2.
Trading is available from a personal computer or mobile device at any spot on the globe.
Trading CFDs and futures contracts does not require big investment, thus traders with a modest deposit on an account can afford to work with these financial derivatives.
Leverage offered by the broker enables traders to step up a contract’s amount without investing their own funds.
Traders are free to choose any hours to work with CFDs as such contracts are traded outside exchange floors. Therefore, trading CFDs is unaffected by the schedule of sessions.
A trader is able to make profits both from prices moving down (short positions) and prices moving up (long positions). The most important is to determine precisely a further direction of an asset’s price. In other words, a trader can earn regardless of a market trend.
A trader can mitigate risks, hedging positions. Thus, a good solution is to open positions, correlated to each other, on several underlying assets. With reverse positions, it is possible to gain profits whatever trend is unfolding.
One of the sheer advantages is a wide range of trading assets available with InstaForex. Even demanding traders are sure to find instruments to suit their needs.
Precious metals are one of the most stable and effective tools for saving money. Having a status of the safe-haven asset, gold helps investors to protect their funds both during economic stability and financial turmoil. That is why, for many decades gold has been an integral part of asset portfolios of many investors.
We give you the opportunity not only to invest in precious metals, but also to use this trading instrument for making transactions with forward contracts that bring decent profits. At InstaForex you can start trading CFDs on gold, silver, copper, platinum, and palladium.
Currency trading is activities of forex market participants that include analysis of the current situation, forecast of market dynamics, and making deals on currency pairs. The key benefits of trading on Forex are high profits, accessible software, low commissions, and free work schedule.