What is a contract for difference (CFD)?
CFD stands for contract for difference, a derivative product for speculating on the future direction of a market’s price. You won’t be buying or selling the underlying asset, which in this case is an individual stock. All that changes hands is the money equal to the price difference when the contract is closed. Basically, the price of the asset changes from the beginning to the end of your trade, and this difference will be your profit or loss.
Why trade CFDs on Deriv?
- Trade less than one share.
- The price of one Amazon share at the moment of writing this book is USS3,000, which many can’t afford. Fortunately, Deriv gives you the option to trade CFDs on a fraction of a share.
- Profit from down moves.
- Most brokers will only let you sell a share you own, whereas with CFDs you can sell first (also known as short selling) to profit from down moves. I will explain more under the section entitled Trend lower.
- Enjoy transparent, two-way pricing and instant execution.
- During normal trading hours, Deriv will display a Buy/Sell price of the stocks it offers . There is no need to wait for a broker to get back to you.
Use Leverage for CFD trading on Deriv
Deriv allows you to use leverage in trading CFDs on stocks and stock indices. It means you only need to pay a percentage of the stock’s value when opening a stock CFD trade on Deriv. The difference between the amount you need to pay and the actual asset price is known as “margin”. The margin requirement will be shown to you after you open a trade. It can be as low as 5%, which means you could buy $100,000 of stocks with as low as $5,000 of margin.
Of course, the margin can give you bigger gains if the stock behaves as you’d predicted, but it can also work the opposite way and magnify your losses. Deriv offers ways to protect yourself using stop-loss orders. It also has negative balance protection. If a trade goes completely against you, you will not be asked for additional funds, and your account cannot end up having a negative balance.
Trade with Deriv’s High Leverage
What are stocks and stock indices?
Stocks If a company’s stock belongs to you, you own a piece or a share of that publicly-traded company. In CFD trading, the stocks themselves are never purchased and owned. Your chance to make a profit depends on your speculation on their price change as we shall soon see.
Stock indices A stock index, such as the Dow Jones Industrial Average (Wall Street 30) or DAX 30 (the German Index), is an index that measures the value of a basket of stocks. In the case of the Wall Street 30 or DOW 30, it is made up of 30 top US companies, which currently include the following:
- AXP (American Express Co)
- MCD (McDonald’s Corp)
- AMGN (Amgen Inc)
- MMM (3M Co)
- AAPL (Apple Inc)
- MRK (Merck & Co Inc)
- BA (Boeing Co)
- MSFT (Microsoft Corp)
- CAT (Caterpillar Inc)
- NKE (Nike Inc)
- CSCO (Cisco Systems Inc)
- PG (Procter & Gamble Co)
- CVX (Chevron Corp)
- TRV (Travelers Companies Inc)
- GS (Goldman Sachs Group Inc)
- UNH (UnitedHeatth Group Inc)
- HD (Home Depot Inc)
- CRM (Salesforce.Com Inc)
- HON (Honeywell International Inc)
- VZ (Verizon Communications Inc)
- IBM (International Business Machines Corp)
- V (Visa Inc)
- INTC (Intel Corp)
- WBA (Walgreens Boots Alliance Inc)
- JNJ (Johnson and Johnson)
- WMT (Walmart Inc)
- KO (Coca-Cola Co)
- DIS (Walt Disney Co)
- JPM (JP Morgan Chase & Co)
- DOW (Dow Inc)
If the stocks within the DJIA (Wall Street 30) go up, then the index will move higher, and of course, the opposite is also true. DJIA is a price-weighted index, which means its value is derived from the price per share for each stock, divided by a common divisor. A higher-priced stock would have a bigger impact than a lower-priced one.
The stocks in the index change from time to time. In the case of the Dow Jones, a committee decides on the changes. The latest Dow Jones stocks that were added in 2020 included Salesforce (CRM), Amgen (AMGN), and Honeywell International (HON).
STOCK INDICES FULL NAME (STOCK INDICES NAME ON DERIV)
- ASX 200 Index (Australia 200)
- Hang Seng Index (Hong Kong 50)
- Nikkei 225 Index (Japan 225)
- AEX Index (Netherland 225)
- Euro STOXX 50 Index (Europe 50)
- CAC 40 Index (France 40)
- Deutsche Boerse AG German Stock Index (DAX Germany 30)
- Swiss Market Index (Swiss 20)
- FTSE 100 Index (UK 100)
- IBEX 35 Index (Spain 35)
- S&P 500 Index (US 500)
- Nasdaq 100 Stock Index (US Tech 100)
- Dow Jones Industrial Average (Wall Street 30)
What makes a stock price go up or down?
A stock price will go up and down based on changes in supply and demand. If more investors want to buy a stock (demand) than sell it (supply), the price moves up.
If more investors wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.
This is a very simplistic view, and in the real world there are a few twists to this, but basically, if someone sells a stock, then someone else is buying it.
Start Trading Stocks with Deriv
Which stocks can you trade via Deriv?
Deriv offers a selection of stocks you can trade on. This list is ever-growing. The main stocks that are currently available are listed in the United States, and you can trade them regardless of where you live.
The US remains the most important stock market with household names like Apple, Microsoft, and Facebook, all having their main listings in the US.
Stock specifications
Each CFD listed with Deriv will have its own specifications that can be viewed on MTS. Here we see the example of Microsoft (MSFT). These specs will tell you the trading hours, minimum trade size, stop distances, and margin requirements. It will also tell you what types of orders are accepted.
Trading times
The official trading times for US stocks are 9:30 am EST (14:30 GMT) to 4:00 pm EST (21:00 GMT). Please keep in mind that GMT does not change for daylight saving time (DST), but EST, which is the time in the New York time zone, does change for DST.
Some brokers do offer pre-market trading and after-market trading. However, I tend to stick to the main trading times.
A tip: it is often said that inexperienced traders trade at the opening time, whereas smart money trades during the day or towards the closing. Something worth considering is waiting for the first 15 to 30 minutes to pass before making your first trade of the day.
Swap charges
Whilst Deriv charges no commission, there is a fee for holding a position overnight, namely, swap charges. Swap charge is a daily interest adjustment that will be made to your trading account to compensate for the cost of keeping your position open. To help you work this out, Deriv has a calculator tool that calculates the swap rate and required margin. As interest rates are at historic lows, it’s cheaper than ever to hold positions overnight, but you should still be aware that costs will build up over time and whether your trade makes a profit or loss, you still have to pay the funding charges.
Swap charges are calculated at the end of the day, now set at 23:59 GMT. Positions held through 23:59 pm GMT on Fridays will be charged for three days to cover the weekend. If you open and close a trade during the trading day, there will be no swap charges.
Example: a long CFD trade of Apple
You are long $1 a point shares of Apple (i.e. 10 shares). The current price is $127.50, which means the value of your shares is $1,275.00. Most probably, you are only putting a fraction of this amount, let’s say 10% to keep it simple ($127.50 paid by you). This means $1,147.50 needs to be financed. Let’s say the annual financing rate is 5%. 360 days are normally used for financing. So your daily rate is 5% divided by 360, in other words, 0.0139% per day.
What if I am shorting a stock via CFD?
When you are shorting a stock via CFD, you will incur a borrow charge. The borrow charge will be accounted for in a daily cash adjustment applied to your account. The charge varies according to the stock. The borrow charge, and the ability to hold a short position, can be changed at short notice.
Dividends of Stocks
Many companies will pay stockholders a dividend, which is a distribution of their profits. Whilst holding a CFD does not make you a stockholder, in some cases, your trade will still factor in a dividend credit, or if you’re short, you will be debited for the dividend. Many companies don’t pay a dividend for their stock CFDs, however. To find out if a company does and learn other related details, it’s best to check the company’s investor relations website. For example, Apple presents a detailed record of such information.
Example of a stock CFD trade
Imagine that I decided after some research that Microsoft (MSFT) is a good stock to trade, and I come to the conclusion that its price will go higher.
The quote I am given online is $219.86 bid (sell) and 219.91 ask (buy). As I want to buy MSFT, I will select the ask (buy) price, so I am buying at $219.91. If I were selling, I would be selling at the bid price of $219.86.
Opening a Stock CFD Trade
The 5-cent difference is the spread or profit margin. Whenever we are trading, we are always looking for the tightest spread because then it will be easier to break even, as the following example shows. If I buy at $219.91, I will need to sell at a price 5 cents higher to break even, i.e. at $219.96. The wider the spread, the more difficult it is to break even.
I decide to go long (buy) at $0.10 per point”-. It would be the same as owning 10 shares or $2,199.10 worth of shares. As this is a CFD, you will only need to put up a margin (deposit). Deriv will show you the margin requirement when you open the trade. It could be as little as 5%, so you would only need $109.55 (5% of $2,199.10).
You can close your position at any time (during normal market hours). You can also partly close your position. For example, if you have $10 a point on Microsoft you can close $5 and keep $5 running.
= In stock trading, a point is 0.01, so S0.01 per point equals 1 share.
Posted by FXBonus
Please check Deriv official website or contact the customer support with regard to the latest information and more accurate details.
Deriv official website is here.
Please click "Introduction of Deriv", if you want to know the details and the company information of Deriv.
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Comment by Diletta
March 26, 2024
Awesome bonuses, good leverage. A few hiccups, but support rocks!