Trade in financial instruments (equities, exchange indices, currencies etc.) in the form of Contracts For Difference (CFD) is becoming more and more popular around the world. NORVIK BANKA offers its clients the opportunity to operate through a single and free-of-charge trading system:
CFD on equities of more than 1,000 issuers of world major stock markets (US, Europe, Asia)
Index CFD allowing the client to earn on movements of world indices (DJA, NASDAQ, DAX etc.), using both long and short positions
CFD on goods (oil, metals) and currencies, with the possibility of effective work at small volumes of transactions
CFD may be represented as a kind of future contract while at the same time it is more effective in two cases:
operations on markets of equities, currencies, commodities, interest rates etc. at small portfolio volumes (up to USD 30 000)
simultaneous operation on many equity markets (US, Europe) through a single account and from a single trading system
Example: Operations with CFD
Consider an example demonstrating the advantages of CFD in equity trading:
Investor wishes to acquire (buy long) 300 shares at the price ₤150 per share. 300 × 150 = ₤45 000 is the sum required for the purchase. If the transaction is made by means of CFD, only a marginal deposit must be put in the amount of 5% of the value of shares, and namely, ₤45 000 x 5% = ₤2 250. This means that opening a position of ₤45 000 value requires only ₤2 250 to be available on the account. If the share price increases by 13% (₤150 to ₤170), the investor can sell his CFD and thus earn (170 – 150) × 300 = ₤6 000, which makes a 266% profit on ₤ 2250 deposited by the investor upon acquisition of CFD.
CFD: Additional Advantages
Low commissions and margin requirements. CFD allows operating with a deposit that only amounts to a few percent of the actual transaction sum. It enables making investments and getting all gains from changes in the financial instrument price without the tying-up of the biggest part of the investor’s resources.
Convenience in short sales. CFD allows the making of short sales (bear speculation) as easily as the opening of long positions (acquisition of financial instruments in expectation of their price growth). With the help of CFD, short sales become more effective in the context of value and simpler in execution compared to traditional borrowing of shares in bear speculation.
The small minimum size of transactions. Minimum volume of transaction with CFD: 0.1 lot = 10 shares. In this case the required deposit will only be USD 10 to 150 (depending on particular share price).
