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CFD trading
A Contract for Difference (CFD) is a cash derivative investment instrument, generally without expiration, allowing operations to be carried out on price movements without owning the underlying asset.

CFDs allow you to profit in both bull and bear markets or be used as a hedge for investments in stocks.

CFDs are Over Counter (OTC) products. As their name indicates, they are contracts for differences; it is a contract between two parties that exchange the difference between the entry price and the exit price, multiplied by the number of shares. Or indices that were agreed. Therefore, the gains or losses are derived from the difference between the price at which they were bought and at which they were sold.

The price of the CFD is linked to that of its underlying, which is listed on an organized market and from which we know its price at all times. The underlying of the CFDs in which Self Bank can invest are national and international stocks, the main world indices, and commodities.
 
CFDs are products with leverage; that is, it is possible to maintain a position on an asset without paying the entire cost of it, simply the margin required for said operation. This same characteristic endows this instrument with a high risk that the investor could lose his money quickly.

Self Bank provides you with negative balance protection when you invest in CFDs and Currencies, preventing you from losing more capital than initially contributed. If the case should arise in which you lose more than invested, leaving your account in negative, we will automatically regularize said account using a deposit for the amount in which it is overdrawn, leaving it to zero.
 

CFDs are complex instruments and are associated with a high risk of losing money quickly due to leverage. Between 74 and 89% of retail investors lose money when trading CFDs. It would help if you considered whether you understand how CFDs work and can afford to take a high risk of losing your money.

The listed products are not bank deposits and have differences in profitability, risk, and liquidity.

Advantages and disadvantages

List source: dotbig.com.

Advantage

They offer a wide variety of underlying (indices, stocks, and commodities) in markets worldwide.

Possibility of investing up and down, opening short (bearish) and long (bullish) positions.

They allow you to develop different strategies: investment, speculation, portfolio coverage.

They directly replicate the evolution of an index, stock, or commodity.

No minimum account opening amounts to start trading and no account maintenance fees (0% TIN, 0% APR ).

CFDs do not expire, and you do not have to change contracts to hold long-term positions (except for CFDs on commodities and currencies).

Before trading with real money, you can do it with a free demo account.

Self Bank provides you with negative balance protection when you invest in CFDs and Currencies, preventing you from losing more capital than initially contributed.

Self Bank also provides you with protection by automatically closing the position when the sum of the account cash and the unrealized net profit of all CFDs opened on this account fall below half of the initial guarantee for the aforementioned CFDs.

Drawbacks

CFDs are difficult products to understand; the CNMV considers that they are not suitable for retail investors due to their complexity and risk. 

Trading CFDs requires constant monitoring and surveillance of your investment.

CFDs are complex instruments and are associated with a high risk of losing money quickly due to leverage. Between 74 and 89% of retail investors lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take a high risk of losing your money.

For CFDs, long operations entail a financing cost that corresponds to the part of the total investment not covered by the margin of guarantees provided. 

CFDs are OTC products; they are not traded on regulated markets but rather a market maker who issues them and provides the price. 

Not all CFDs have the same liquidity, so in some cases, we may find that there is no counterparty for the operation. 

To know each product's characteristics and level of risk, consult the Fundamental Data Document for the investor of each product before operating. 

Remember that, although the CFD replicates the price of an asset when you buy a CFD, you are not buying a share, so you do not have some rights such as attending meetings and voting, which a shareholder does have. 

Open positions in CFDs on the same contract that offset each other are netted at the end of the day (unless these positions have related orders). This avoids the cost of financing these positions, minimizing the costs for the investor. For example, if an investor has a long contract position open in the CFD Spain 35 and opens a short position of a contract on the same CFD (without related orders in either of the two), at the end of the day, these will not be displayed. Positions, but will compensate each other practicing settlement for differences.  

The minimum guarantees required to open a position in CFDs,  according to ESMA regulations, are the following (although in some cases Self Bank will require a guarantee higher than that indicated below):

  • 3.33% for changes between major currencies

  • 5% for exchanges between non-major currencies

  • 10% for non-gold commodities and non-major stock indices

  • 20% for shares and other values ​​taken as reference

  • 50% for cryptocurrencies (Self Bank does not offer CFDs on cryptocurrencies)

 

CFD accounts are provided by Saxo Bank A / S. Saxo Bank A / S is a company incorporated in Denmark (with registration number 15731249) as an authorized bank (license 1149), with a registered address at Philip Heymans Alle 15 2900 Hellerup (Denmark) and is regulated by the Danish Financial Supervisory Authority.

Learn how CFDs work through an example

Operating with CFDs: raising a value

  • If we want to bet on the rise of a value taking advantage of the leverage offered by CFDs, and we have € 1,000 in the account. If it is secured with high liquidity and little volatility, we could buy approximately 10 times more cash than we have, that is, up to $10,000 in this case. As in the purchase of shares, the capital gain or loss will be the difference between the purchase and sale prices of each CFD, fewer commissions, and financing costs.

Trading CFDs: going down a security

  • If we want to bet on a drop in value, we will sell the CFDs first, hoping that the stock will go down to buy back the cheaper CFDs later, thus obtaining a profit. In case the share price rises, we will buy the most expensive CFD, taking a loss. As in the previous case, if we wanted to adopt a bearish position in that same value, with $1,000 in the account, we could sell for up to $10,000.
Date(s): August 10, 2021. Album by Bobby Manhatta. 0 Total. 0 Visits.
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