FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
Libertex information and reviews
HFM information and reviews

XTrade: Trade Commodities with Confidence

18 October 2021

CFDs are "contracts for difference" – derivatives financial instruments designed to mirror the price movements of their underlying assets. In other words, a CFD is priced just like the financial asset it represents. If the price of the asset rises, the price of the CFD rises. If the price of the asset falls, the price of the CFD falls. The trick to understanding how CFDs work is actually hidden in plain sight – it's a derivatives instrument. The price is derived from the price of the underlying asset. CFD trading is a form of speculative trading. Other options include spread betting on financial instruments. 

Xtrade offers traders access to multiple different types of CFD products, including CFD shares, CFD indices, CFD commodities, CFD forex, CFD bonds, and CFD ETFs.

Each of these asset categories allows for greater diversification in your financial portfolio. A CFD is a speculative instrument that allows you to trade price movements of the underlying asset. You don't actually take ownership of the underlying financial instrument – you are simply trading price movements. 

Why Trade CFDs as Opposed to The Financial Instruments?

In a standard investment involving shares, forex, commodities, indices, or ETFs, the asset must appreciate at price. When you buy and hold, price appreciation is necessary for profits to be generated. With trading, it's a different ballgame entirely. The same assets can be traded in rising or falling markets with CFDs. This speculative market allows you to use your own judgment when buying or selling CFDs online.

If you are optimistic about the asset, you are bullish and you buy the CFD. If you are pessimistic about the asset, you're bearish and you sell the CFD.

You're probably wondering how you can make money when an asset falls in the price?

CFDs are unique in that you can go long (bullish), or short (bearish) on the derivatives instrument. If you go long, because your technical and fundamental analysis suggests price appreciation in the future, your profit is calculated as the difference between the buy price and the selling price. If the selling price is higher than the buy price, that difference represents your profit. If the selling price is lower than the buy price, that difference represents your loss.

In the figure above, you purchase a CFD share at Price A and sell later at Price B. This is called Going Long on the CFD. The entire green area represents your profit. However, in the figure below, Price B is lower than purchase Price A and this represents your loss.

An interesting thing happens when you Go Short on a CFD share, or any other instrument available at Xtrade. When you trade the CFD contract, you agree to buy the CFD at a future price that is lower than the present price that you immediately sold it for. The difference represents your profit. You are effectively buying back the financial instrument that you borrowed from the seller at a future date, and you are pocketing the difference as profit.

Of course, it is possible that the price of the underlying financial instrument will not fall if you go short. It may actually rise in value. If this happens, the degree of price appreciation represents your loss. In the figure below, you Go Short on the CFD at Point A, but the price of the underlying financial instrument rises to Price B. When you Sell at Price A you have to Buyback at Price B. That represents a loss.

What types of CFDs are available at Xtrade?

Xtrade features a long list of CFDs across multiple asset categories. These include the following options:

Within each category of CFDs are multiple assets to trade. Xtrade offers competitive spreads, with no commissions. There are no deposit or withdrawal fees charged to clients. If you keep CFDs open after 10PM GMT, premium charges will be applied. For a full listing of Premium Sell and Premium Buy Charges for each product, click here

How Does Leverage & Margin Work with CFDs?

All traders have a limited budget to work with. Fortunately, you don’t have to invest all of your capital in a handful of trades. With leverage, you get to use only a small portion of your available capital to open any CFD trade at Xtrade. The precise amount of leverage will vary from one category to the next.

For example, shares like Moderna are available with leverage of 10:1. This means for every $1 of your capital that you invest in a Moderna CFD trade, you will get $10 worth of trading power. Indices CFDs such as the Russell 2000 are also available with leverage of 10:1.

Commodity CFDs like Brent crude oil are available at Xtrade with leverage of 10:1, while forex majors like USD/CAD are available with leverage of 30:1. Bonds like the US 5Y T-Note come with 5:1 leverage, much like the USO-Oil Fund ETF. It's always a good idea to check out the leverage on your preferred financial instrument to determine how much of your capital is required up front in order to open a position.

Leverage acts as a multiplier. It can increase your profits when your trades finish in the money, but it can also increase your losses when your trades finish out of the money. Leverage should always be treated with respect. In the event that trade doesn't go the way you anticipated, your broker may require a margin call in order to cover the trade and keep it open.

In the absence of sufficient capital in your account, the trade will be closed out and you will incur the losses on the full value of the trade. The margin amount – the money you front of your own capital – is not the only amount that you can lose on a trade. Leverage gives you magnified exposure to the financial markets. The relationship between leverage and margin is easy to calculate. If the leverage is 10:1, your margin requirement is 1/10 = 10%. That means you need to front 10% of the value of the trade. If the leverage is 5:1, that means the margin requirement is 1/5 = 20%. These percentages represent the deposit required of you to open the position.

Pros and Cons of CFD Trading



It should be pointed out that CFDs are best suited to short-term trading activity only. Holding CFDs over the long term is not possible because they become too expensive to maintain. The holding costs of CFDs kick in at the end of the trading day. If you have any positions that are still open in your account, they will be subject to rollover fees which can be positive or negative based on your individual trades and the holding rates.

Brokers make their money from the spreads – the difference between the buy price and the selling price. There are also other ways to generate returns for brokers, such as financing charges, and hedging charges. Your margin amount can also be the broker's profit if the trade goes against you.

Tips for Trading CFD

CFD trading is inherently risky since it is speculation on the future price movement of an underlying financial instrument. Having said that, you can certainly improve your winning chances by doing your homework. Careful and methodical research of your chosen financial instruments can certainly help you. Use technical analysis (charts and graphs), and fundamental analysis (economic and financial factors) to make more informed decisions.

Several other rules will hold you in good stead, notably demo trading before you trade for real money. It's really important to understand how our trading platform works – WebTrader for PC, Mac, and Mobile - before you deposit and trade real money CFDs.

Open a Trading Account with Xtrade. It takes less than 2 minutes to open an account with Xtrade. Use Credit Card, Skrill or Bank Transfer to fund your account.


Share: Tweet this or Share on Facebook


OctaFX broker invites everyone on a festive trading journey
OctaFX broker invites everyone on a festive trading journey

This winter, the global Forex broker OctaFX invites every trader on a four-week trading journey aboard its Festive Express. A massive New Year campaign will appeal to all who love lucrative offers. It is the perfect opportunity to start celebrating the coming year...

29 Nov 2022

ActivTrades: Infinitely scalable investing solutions
ActivTrades: Infinitely scalable investing solutions

Innovative and robust investment technology by industry leader for the most demanding institutional partners. We serve a wide range of organisations delivering first-class investment and brokerage solutions...

24 Nov 2022

Join Libertex for a chance to win 500 BTC
Join Libertex for a chance to win 500 BTC

November marks a momentous month for the Libertex Group as the veteran broker gears up to commemorate its 25th anniversary. After surviving and thriving a full quarter century...

24 Nov 2022

AMarkets increases the leverage for cryptocurrency pairs
AMarkets increases the leverage for cryptocurrency pairs

AMarkets has increased the leverage to 1:100 for BTC/USD and BTC/EUR pairs, and to 1:10 for other cryptocurrency pairs. There are now 27 cryptocurrency pairs...

23 Nov 2022

Olymp Trade’s 8th birthday event results
Olymp Trade’s 8th birthday event results

Our celebration for Olymp Trade’s eighth birthday turned out to be one of the most spectacular events of the year. We held a series of online and offline events, all connected by the theme of freedom...

21 Nov 2022

XM Traders in Davao Learned How to Trade Crypto
XM Traders in Davao Learned How to Trade Crypto

XM completed yet another successful seminar in Davao on 22nd October, titled How to Choose and Trade Cryptocurrencies. Investors can face challenges with the rapidly changing and evolving cryptocurrency market...

17 Nov 2022

Editors' Picks

FXCM information and reviews
ActivTrades information and reviews
RoboForex information and reviews
MultiBank Group information and reviews
MultiBank Group
FxPro information and reviews
Vantage information and reviews

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.