Economy
Understanding Contracts for Difference (CFDs) in Trading
Contracts for Difference, commonly known as CFDs, represent a significant portion of the modern trading landscape. They are intricate financial instruments that provide traders with a host of opportunities, but they also come with their own unique set of challenges and risks. This article aims to shed light on what CFDs are, how they operate, and the implications they hold for traders.
A Deeper Dive into Contracts for Difference
CFDs are an attractive instrument for many traders due to their flexibility. They allow traders to speculate on a wide array of global markets without needing to invest in the physical asset. This can open up opportunities that might otherwise be inaccessible due to financial or logistical constraints. For example, international shares, commodities, or currencies might be out of reach for some traders, but CFDs on these assets are readily available on most trading platforms.
Another notable aspect of CFDs is their application in hedging strategies. If a trader has a physical portfolio and fears a short-term drop in the market, they can ‘go short’ with a CFD to potentially offset any losses in their actual portfolio. It’s important to note, however, that while this strategy can protect against losses, it can also limit profits if the market rises instead.
Moreover, CFDs are traded on margin, meaning traders only need to deposit a percentage of the full value of their position. This leverage can magnify profits if the market moves in the trader’s favor. However, it’s crucial to remember that leverage can also magnify losses, potentially even exceeding the initial deposit, making prudent risk management an absolute necessity.
Lastly, unlike traditional trading, CFD trading offers opportunities 24 hours a day, reflecting the global nature of the financial markets it encompasses. This can allow traders to take advantage of price movements at any time, providing a level of flexibility that traditional trading methods may not.
Trading CFDs on a CFD Trading Platform
Modern trading has been transformed by the advent of online trading platforms, and CFD trading is no exception. A CFD trading platform offers traders the ability to speculate on price movements without the need to own the underlying assets. These platforms provide a range of tools to assist traders in making informed decisions, such as advanced charting capabilities, market news feeds, and analytical tools.
Using these platforms, traders can quickly react to market fluctuations and capitalize on short-term price movements. Additionally, many of these platforms offer features such as stop-loss orders, which can help mitigate potential losses by automatically closing a trade if the market moves against the trader’s position by a specific amount.
Factors Influencing CFD Trading
A wide range of factors can influence the prices of the underlying assets in CFD trading, and as a result, the potential profits and losses for traders. These factors can range from company earnings reports and major news events to changes in economic indicators and shifts in market sentiment.
For example, let’s consider a recent financial update: the Central Bank of Nigeria increased the interest rate by 0.25% to 18.75%. Such a change could affect the value of Nigerian stocks and bonds, and thereby, the CFDs associated with those assets. Traders speculating on these CFDs would need to take this interest rate hike into account when making their trading decisions.
The Risks and Rewards of CFD Trading
CFD trading is not without its risks. The use of leverage means that both potential profits and potential losses are magnified, and there is a risk of losing more than your initial investment. Therefore, risk management is critical in CFD trading, and traders should use tools like stop-loss and take-profit orders to manage their risk exposure.
On the flip side, CFD trading offers a high degree of flexibility. Traders can go long or short with ease, making it possible to profit from both rising and falling markets. Furthermore, CFDs enable traders to gain exposure to a variety of markets and assets without needing to own them outright, which can be a major advantage in terms of both cost and convenience.
In conclusion, Contracts for Difference represent a complex yet potentially rewarding aspect of modern trading. They require an in-depth understanding of the market and a solid strategy, but for those willing to invest the time and effort, they offer a versatile and dynamic approach to trading.
By Adedapo Adesanya
Food Concepts Plc neutralized the gains recorded by three securities, returning the NASD Over-the-Counter (OTC) Securities Exchange into the negative territory with a 0.27 per cent loss on Thursday, December 4.
Yesterday, the share price of the parent company of Chicken Republic and PieXpress declined by 34 Kobo to sell at N3.15 per unit compared with the previous day’s N3.49 per unit.
This shrank the market capitalisation of the OTC bourse by N5.72 billion to N2.136 billion from N2.142 trillion and weakened the NASD Unlisted Security Index (NSI) by 9.57 points to 3,571.53 points from 3,581.10 points.
Business Post reports that Central Securities Clearing System (CSCS) Plc went down by 50 Kobo to N38.50 per share from N38.00 per share, FrieslandCampina Wamco Nigeria Plc gained 29 Kobo to sell at N55.79 per unit versus N55.50 per unit, and Geo-Fluids Plc added 5 Kobo to close at N4.60 per share compared with Wednesday’s closing price of N4.55 per share.
Trading data indicated that the volume of securities recorded at the session surged by 6,885.3 per cent to 4.3 million units from the 61,570 units posted a day earlier, the value of securities increased by 10,301.7 per cent to N947.2 million from N3.3 million, and the number of deals went up by 146.7 per cent to 37 deals from the 15 deals achieved in the previous trading session.
At the close of business, Infrastructure Credit Guarantee Company (InfraCredit) Plc was the most traded stock by value on a year-to-date basis with the sale of 5.8 billion units for N16.4 billion, trailed by Okitipupa Plc with 170.4 million units worth N8.0 billion, and Air Liquide Plc with 507.5 million units valued at N4.2 billion.
InfraCredit Plc also finished the session as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Dipo Olowookere
The upward trend witnessed at the Nigerian Exchange (NGX) Limited in recent sessions continued on Thursday as it further improved by 0.10 per cent.
This was despite investor sentiment turning bearish after the local equity market ended with 23 price gainers and 28 price gainers, indicating a negative market breadth index.
UAC Nigeria gained 10.00 per cent to finish at N88.00, Morison Industries appreciated by 9.94 per cent to N3.54, Ecobank rose by 8.53 per cent to N36.90, and Coronation Insurance grew by 8.47 per cent to N2.56.
On the flip side, Ellah Lakes depreciated by 10.00 per cent to N13.14, Eunisell Nigeria also shed 10.00 per cent to finish at N72.90, Transcorp Hotels slipped by 9.95 per cent to N157.50, Omatek shrank by 9.23 per cent to N1.18, and Guinea Insurance dipped by 8.46 per cent to N1.19.
Yesterday, the All-Share Index (ASI) went up by 152.28 points to 145,476.15 points from 145,323.87 points and the market capitalisation chalked up N97 billion to finish at N92.726 trillion compared with the previous day’s N92.629 trillion.
Customs Street was bubbling with activities on Thursday, though the trading volume and value slightly went down, according to data.
A total of 1.9 billion stocks worth N19.2 billion exchanged hands in 23,369 deals during the session versus the N2.3 billion valued at N21.0 billion traded in 21,513 deals a day earlier.
This showed that the number of deals increased by 8.63 per cent, the volume of transactions depleted by 17.39 per cent, and the value of trades decreased by 8.57 per cent.
For another trading day, eTranzact led the activity chart with 1.6 billion units sold for N6.4 billion, Fidelity Bank traded 31.0 million units worth N589.3 million, GTCO exchanged 28.3 million units valued at N2.5 billion, Zenith Bank transacted 27.1 million units for N1.6 billion, and Ecobank traded 21.9 million units worth N744.3 million.
By Adedapo Adesanya
The Naira marginally depreciated against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Thursday, December 4 amid renewed forex pressure associated with December.
At the official market yesterday, the Nigerian currency lost 0.01 per cent or 18 Kobo against the Dollar to close at N1,447.83/$1 compared with the previous day’s N1,447.65/$1.
It was not a different scenario with the local currency in the same market segment against the Pound Sterling as it further shed N15.43 to sell for N1,930.97/£1 versus Wednesday’s closing price of N1,925.08/£1 and declined against the Euro by 20 Kobo to finish at N1,688.74/€1 compared with the preceding session’s N1,688.54/€1.
Similarly, the Nigerian Naira lost N5 against the greenback in the black market to quote at N1,465/$1 compared with the previous day’s value of N1,460/$1 but closed flat against the Dollar at the GTBank FX counter at N1,453/$1.
Fluctuations in trading range is expected to continue during the festive season as traders expect the Nigerian currency to be stable, supported by intervention s by to the Central Bank of Nigeria (CBN)in the face of steady dollar demand.
Support is also expected in coming weeks as seasonal activities, particularly the stylised “Detty December” festivities, will see inflows that will give the Naira a boost after it depreciated mildly last month, according to a new report.
“As the festive Detty December season intensifies, inbound travel, tourism spending, and diaspora inflows are expected to provide moderate support for FX liquidity,” analysts at the research unit of FMDA said in its latest monthly report for November.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450 next week, buoyed by improved FX interventions by the apex bank.
Meanwhile, the crypto market was down as the US Federal Reserve’s preferred inflation gauge, core PCE, likely rose in September—moving in the wrong direction. However, volatility indices show no signs of major turbulence.
If the actual figure matches estimates, it would mark 55 straight months of inflation above the US central bank’s 2 per cent target. The sticky inflation would strengthen the hawkish policymakers, who are in favour of slower rate cuts.
Ripple (XRP) depreciated by 4.5 per cent to $2.08, Solana (SOL) went down by 3.8 per cent to $138.11, Litecoin (LTC) shrank by 3.1 per cent to $83.23, Dogecoin (DOGE) slid by 2.5 per cent to $0.1463, Cardano (ADA) declined by 2.1 per cent to $0.4368, Bitcoin (BTC) fell by 0.9 per cent to $91,975.45, Binance Coin (BNB) crumbled by 0.9 per cent to $899.41, and Ethereum (ETH) dropped by 0.7 per cent to $3,156.44, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 apiece.
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