CFD Markets, Trading CFDs on Indices, Commodities, Forex, Cryptocurrencies
Welcome to this article where we discuss the most common assets you can trade in the forex and CFD markets. We will delve into commodities. CFD trading and the differences that exist between the two. As you learn these commodities, you will find it much easier to transition. Find the best forex broker for you by reading our Forex broker reviews.
Forex and CFDs allow traders to trade many assets. The forex traders trade these assets in the form of financial instruments. Others who deal with the Forex and CFD market include investors, individuals, banking institutions, and other participants.
By themselves, these commodities do not have inherent physical worth. That means that as you do the forex and CFD trading, you do not own any of the underlying assets.
In the forex and CFD markets, there are classes that are made up of various securities that have similar characteristics and fluctuations in prices. So, before we get into all this, you should know that the best chance you have of succeeding, is tied to the choices you make.
Some of the significant assets are as follows.
These are financial assets bought and sold through future contracts in the forex and CFD markets. Commodities are traded based on the exchanges which are in charge of the standardization, quality assurance, and quantification, of the commodities up for trade.
The commodities in a sense are raw materials that are traded in bulk. They are mostly directed at use for the making of other goods and services. When you look at the CFD market, you find that commodity trading is an excellent way for one to speculate on the forex and CFD markets.
When you join the markets, you will find that there are two methods through which one can trade commodities. The methods include:
The commodities settled by cash consist of a date to make the settlement in the near future. The forward settled commodities consist of a settlement date like the cash kind but with a date set in the far future.
The most commonly traded commodities in the forex and CFD markets are:
- Energies (like oil and natural gas)
- Precious metals (like gold, silver, and copper)
- Soft commodities in agriculture (like sugar, wheat, coffee, and cocoa)
To understand this whole thing better, we are going to talk about them some more. The CFD markets are broad, and that is what we will try to help you learn. As you go about doing this, remember that the best platforms make it easy for you to trade CFDs.
Energies are the set of commodities that have the most significant impact on the economy across the globe. Examples of the tradable energies are natural gas and oil. In the world today, we use crude oil as energy in transportation for ships, jets, trains, and cars.
We use it in the production of other things like plastic, computers, synthetic textiles, fertilizers, and cosmetic products. Natural gas is used in the manufacturing and production industries. It is also in high demand for household and commercial users for electricity and heat.
- Precious Metals
Gold, silver, and copper are scarce commodities in the world. That is why they are traded as commodities in the forex and CFD markets. The demand for these commodities is the product of speculation. Gold, for example, is seen as the alternative for paper money.
The price of gold often moves in the opposite direction when compared to the United States Dollar. Gold is used in making things like electrons and jewelry. Copper is used in the building of infrastructure and industrial production purposes.
- Agricultural Produce
Agricultural goods are usually meant to be used by people for essential functions like food, traded for goods or speculated upon, in the forex and CFD markets. This is a set of commodities that are placed in the soft category.
The number of agricultural products is high, but some of the major ones they trade include sugar, cocoa, wheat and coffee.
Currencies are usually traded in pairs in such a way that the increase in the value of one of the currency pairs leads to the decrease in value of the other. When trading in the forex and CFD markets, speculation is the primary method used when deciding to buy as the value of a currency goes up and selling, when the price decreases, to make profits.
There are three major classes of currency pairs. They can be broken down into the following:
The Major Currency Pairs:
- EUR/USD Euro and the United States
- USD/JPY United States and Japan
- GBP/USD United Kingdom and the United States
- USD/CAD United States and Canada
- USD/CHF United States dollar and Switzerland
- AUD/USD Australia and the United States
- NZD/USD New Zealand and the United States.
The Minor Currency Pairs
- EUR/ AUD
The Exotic Pairs
- USD/ SGD
Now we move on to cryptocurrencies.
The thing about crypto is that it rose from obscurity to become a significant player in the forex and CFD markets. The cryptocurrencies are digital currencies that use cryptography as a form of security.
What makes them suitable for CFD markets is that they have no physical forms (except for novelty items) and their value is expressed digitally with numbers transferred from one holder to another.
A blockchain is a platform upon which they are all built. It is a decentralized system that contains the cryptocurrency’s ledger and all transactions. It is accessible to the public, but it cannot be edited without the effort of at least 51% of the people on the network agreeing to a change.
Unlike currencies that are maintained by banks, the cryptocurrencies are supported by blockchains and algorithms. Examples of the cryptos include Bitcoin, Ripple, Litecoin, Dash and Ethereum, among others.
Stocks are the financial assets that show the ownership of a company. With stock, you get a representation of a claim on the part of an industry's earnings and the assets as well. There are two types of shares in the equity and CFD markets.
The common stock gives the owner the ability to vote when there is a shareholder meeting in addition to getting paid a dividend or stocks which do not transfer the voting powers to any shareholders.
The tradable stocks are offered by large corporations and companies like Facebook, Amazon, Ford Motor, General Electric, Wells Fargo or Intel, among others.
We call them Exchange Traded Funds or ETFs for short. They are financial investment funds that work through tracking the broad-based indexes, assets and commodities. With ETFs, the trading happens in the forex and CFD markets, in the same way, that stocks are bought shortly by traders and bought on margin.
ETFs are known for having a dynamic nature, where they fluctuate in every trading season. The fluctuations are caused by trader activity and market events. Examples of ETFs are
- SDPR S&P 500
- S&P 500 VIX Short-Term Futures ETN
- MSCI Emerging Markets Index Fund
- MSCI Japan Index Fund
- Financial Select Sector SPDR
- Power Shares QQQ Trust
- Russell 2000 Index Fund
You can find out more about them when you are finally in the markets and ready to trade.
Treasury Bonds and Notes
The treasury bond and notes are fixed-income assets. They include money loans given to the government or corporate bodies by a trader or investor for a specific time with an attached variable or a fixed interest rate.
The treasuries are regarded as a fund generation place by the governments, states and companies when financing significant projects and other activities. In the forex and CFD markets, traders will generally buy or sell securities.
Bonds are issued with maturity from 10 to 30 years. Treasury notes are issued with maturity at 2 to 10 years.
A Look into The Basics of CFD Markets and Forex
Contracts for difference (CFDs) and Forex, have essential similarities and differences that you will need to keep in mind even as you get into the markets. They can both be useful when you are doing speculation, and by learning how to traverse both markets, you can find many opportunities that suit what you want to do.
The Basics of Forex and CFD markets
CFDs are contracts between traders and brokers. In them, they agreed to exchange the difference between the entry and exit price of an underlying asset. The arrangements can be used to speculate on forex markets and also to bet on assets that we have mentioned above and market factors like indices and such.
When in the CFD markets, investors enjoy certain flexibility when choosing both the currency to trade and the increment values that they would like to use. The profit or loss that they receive from the arrangements is a calculation of the difference between the entry and exit prices and the multiplication of that figure by the number of CFD units.
At first, the CFDs may look complicated and hard to grasp. However, with time, you can be able to do CFD trading with ease. Forex is more straightforward as you may have seen from the forex education you have received.
The Similarities Between CFDs and Forex
- Both the CFD and forex trading, do not deal with the transference of physical assets.
- They both trade Over the Counter (OTC), which means that the transactions are decentralized and take place over the networks of financial institutions. The trades are also made the same way.
- They trade on the same platforms, which has led to some service providers to give traders platforms that allow them to access both the CFDs and Forex markets.
- Both of then offer access to margin. The margin you get when trading in the CFD markets is usually a fixed percentage. In an example: If a contract comes with a margin of 10%, the trader can put down 10% of the contract’s total market position value and borrow the remaining funds.
- In forex trading, the margin is a ration that is expressed as 1:5 or 1:8, etc. if you have a leverage ration of 1:5, it means you can enter into trades worth $50 for every $10 you have in your account.
Another similar thing you will discover between the forex and CFD markets is that the trading costs are based on the spread. The spread here is the difference between the entry and exit points.
The Differences Between Forex and CFD Markets
There are some differences, which include:
- We said earlier that the CFDs have a certain kind of flexibility to them because they offer contracts that have different currencies and increment values.
- The critical price determinants are different too. In the CFDs, for example, the prices are highly dependent on the supply and demand for the underlying asset that is being traded. The value of currencies in the forex market is dependent on the fundamental factors like the strength of an economy, policies instituted by the economies and other factors like that.
- The forex market is open for 24 hours a day for five days a week. It offers investors around the world access to everything at their leisure. When it comes to CFDs, the trading times vary based on the underlying market, commodity, and asset.
You will need to learn more about the trading hours from the guides provided by various services, about the trading times of these markets.
There is a lot to learn about the CFD and forex markets before you can get started. The best thing to do as you start is to make sure that you do not skip anything in your forex education. You will need to make sure that you find the best forex broker by reading our Forex broker reviews.
The commodities you will trade in CFD markets may seem complicated when you get started, but they become easier to grasp once you realize how everything works.
The markets can be rewarding when you do CFD trading. It is up to you to make sure that you do not skimp on any of the crucial knowledge that is needed when you want to be a trader in any of these markets.