GTCM allows its clients to perform transactions via a financial product that is called Contract for Difference (CFD).
A Contract for Difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (If the difference is negative, then the buyer pays instead to the seller).
CFDs, with GTCM, allow you to trade on the price value of Forex, shares, commodities and indices. Trading on the value of a financial instrument without the need for ownership.
Trading CFDs is risky, and it is highly recommended to obtain familiarity and experience before you start trading. In case you do not have any familiarity or experience, trading CFDs may not be appropriate for you. For the full risk disclaimer, please click on the link below.
Examples in Trading CFDs
- If an investor buys shares of a listed company, he will have an ownership in that company and if the price of the share increases, he will earn the difference between the buying price and the selling price, for any share he holds. If the share price decreases, he will lose the difference between the buying and the selling price for any share he holds.
- If an investor trades by buying ounces of gold he will have the physical gold metal, and if the price of the gold increases, he will earn the difference between the buying price and the selling price for every ounce of gold he had purchased. If the gold price decreases, he will lose the difference between the buying price and the selling price for every gold ounce he has.
By trading CFDs the investor holds a contract on the price value of the financial instrument without owning the actual share or the gold ounce. However, the principle for earning and losing is the same. The abovementioned examples were on shares and gold, however, this is valid for any financial instrument that is being traded via CFD.
For the full list of symbols of the financial instruments and the trading conditions with GTCM including the order size and information about related costs and charges, click on the following link:http://www.gtcm.com/Trade-with-us/Trading-Conditions.
Example in trading with CFDs using numbers
- An investor wishes to buy 10 ounces of gold; he believes that the gold price will increase. The current buying price is $1,200 per ounce, at the gold shop. The investor will have to actually buy the gold and pay 10 ounces times $1,200 per ounce, which equals to a total amount of $12,000. He exchanges the money with the gold. This investor can go back to the shop and sell the 10 ounces anytime, with the aim of selling it after the price exceeds $1,200 in order to earn a profit.
Assuming that the price increases by $50 and reaches $1,250 per ounce, the investor can sell the 10 ounces of gold and earn $50 per ounce, which would give him a total profit of $500 ($50 increase per ounce times 10 ounces). Assuming on the other hand, that the price decreased by $50 and reached $1,150 per ounce, the investor can sell the 10 ounces of gold and lose $50 per ounce, with a total loss of $500 ($50 decrease per ounce times 10 ounces).
With GTCM, trading in CFDs is as follows: an investor may perform the same transaction as above, however, without actually purchasing the gold nor investing $12,000. He can invest on gold via CFD which offers him the same potential of earning or losing based on the movement of the gold price.
CFDs with an expiry date
As explained a CFD is traded on the price value of other financial instruments. In case the other financial instrument has an expiry date then, the CFD will have the same expiry date.
You can find all CFDs that have an expiry date by clicking on the following link http://www.gtcm.com/Trade-with-us/Trading-Conditions.
The spreads provided are indicative and are subject to change according to trading hours and market volatility. Clients should note that these may vary and are advised to check important news announcements on economic calendar which may result in the widening of spreads, among other instances.
- Crude Oil (CL) is being traded as a future contract in the NYME (New York Mercantile Exchange) owned by the CME (Chicago Mercantile Exchange), with future contracts having an expiry date and indicating that the contract will be closed at the end of the indicated date. The CFD that follow the Crude Oil (CL) contract will have the same expiry date and will no longer be tradeable. Any open positions will be closed at the expiry date of the contract. Investors that wish to have a Crude Oil (CL) CFD after the expiry date, will need to get into a new CFD contract that follows the new future contract with a new expiry date.
The expiry date can be found in the name of the CFD symbol.
As seen from the examples above, with CFD trading the investor has a contract that commits him to settle any difference in the price with a loss (if the gold price goes below $1,200) and the counter party of the contract commits to pay him the earning (if the gold price goes above $1,200) and it is not necessary for real gold to be exchanged. Due to the fact that there is no real purchase of gold and it is only a committed contract to settle the profit or loss between the investor and the counterparty, the investor will provide a margin to secure the potential losses that he might suffer.
- The investor will buy via CFD 10 ounces of gold at a price of $1,200 per ounce, giving a total trade value/exposure of $12,000 (10 ounces times, $1,200 price per ounce). The minimum margin for gold trading with GTCM is 0.5%. Therefore, for this example the investor should have a minimum of $60 ($12,000 * 0.5% = $60) available margin in his trading account, in order to secure any potential loss for the specific trade. Using a small amount of funds in order to have a larger exposure is referred to as “Leverage”. The investor Leverages his $60, to have a larger trade for the value of $12,000. The investor is liable for the leveraged amount in all aspects for example, profit, loss, overnight fees etc.
The meaning of 1:200 leverage is that the investor can have a maximum trade value/exposure of 200 times his account equity, i.e. an investor that funds his trading account with $1,000, will have the maximum ability to trade with $200,000. The investor will be fully liable for any outcome of the leveraged trade e.g. profit, loss, fees, spread value etc.
- An investor funding his trading account and wishes to buy 100 ounces of gold at the market price, the trading platform allows him a leverage of 1:200 on gold trading. The investor, opens the trading box available on the trading platform and establishes the requested contract details: 100 ounces of gold. The trading platform calculates what is the minimum margin to open the trade.
Trade value/exposure = 100 ounces * buying price $1,203.38 = $120,338The margin with 1:200 leverage (0.5%) = total exposure $120,338/200 = $601
The investor has $1,000 so, he has more than the minimum required and therefore, the investor can open the trade.
- Another example would be, if an investor has $500 in his trading account and his broker allows him a leverage of 1:200, the investor can have a maximum exposure of $500*200 = $100.000, ($500 is equal to 0.5% out of $100.000).
The total value of the trade is $120,338 and the investor is exposed to the fluctuation according to the leveraged amount.
If the gold price increases by 0.5%, the investor will gain $601 ($120,338 *0.5%); the investors’ equity will be $1,601 ($1000 the deposit + 601 the profit) => a Gain of 60% from the deposit.
If the gold price decreases by 0.5%, the investor will lose $601 ($120,338 *0.5%); the investors’ equity will be $399 ($1000 the deposit - 601 the loss) => a Loss of 60% of the deposit.
The risk reward ratio is the same. The investor can win and can lose according to the market movement in the same proportion.
Trading CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, CFDs may not be suitable for all investors because you may lose all your invested capital. Please refer to the full Risk Disclaimer.
As mentioned above, the risk reward ratio is the same, and the market prices can go for or against the investor. However, in highly volatile markets that move rapidly, the investor can lose all his money very quickly; without the investor having the ability to act (i.e. to close the positions or to increase the margin level by funding the trading account) resulting in the loss of all of the capital, i.e. Liquidation.
· An investor purchases 100 ounces of gold and the price per ounce is $1,203.38, giving a total exposure of $120,338. If the gold price changes by 0.85% in 30 minutes, the investor is at work and this quick move went against the investor, this will result in a loss of $120,338*0.85% = $1,022.87.
The investor will lose all his deposits without having the ability to react.
When the client is at risk of liquidation, he will receive on the trading platform a popup that will inform him that he is at risk. However, when the investor is not logged on to the platform, he needs to be aware that there is a risk of liquidation.
Trading via CFDs using Trading Benefits (Bonus)
In order to receive a Trading benefit (Bonus), the investor needs to agree and accept the Trading benefits (Bonus) terms and conditions.
The idea of the Trading benefit (Bonus) is to allow the investor an additional margin to trade with. It is important to understand the following:
- The Bonus can be withdrawn only after a minimum trading volume as stated in the Terms and Conditions;
- Any losses resulting from the investor’s transactions will always be deducted first from the investor’s withdrawable equity (deposit) and only after the withdrawable equity reaches Zero (0) the losses will be deducted from the Bonus; and
- The investor is able to withdraw any profits, without any conditions.
The full terms and conditions can be found in full at the link below:http://www.gtcm.com/documents/Trading-Benefits-Terms-and-Conditions_GTCM
· The Investor funds his trading account with $1,000 and accepts to receive a Trading benefit (Bonus) of $500. As a result, the investor has $1,500 in his trading account available to trade with. He may risk the total of $1,500, however, only the $1,000 is his.
We recommend you read carefully the full Trading benefits (Bonus) terms and conditions detailed in the link below: