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Contracts for Difference and An Introduction to Exchange
Traded CFDs
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Exchange
Traded CFD's:
Exchange traded CFD's are a new securities initiative launched in
the latter half of 2007 on the ASX stock exchange. Based on the
same principles as conventional contracts for difference, investors
and traders enjoy greater transparency and the benefits associated
with having an exchange traded and regulated clearing mechanism.
In the past, the leverage associated with contracts for difference
has been provided by third party brokers. Several articles provided
on this site go into greater detail about the different CFD models
and emphasize the benefits provided by the new exchange traded contract
for difference products. The new open interest charge and the implications
of corporate actions are also discussed in detail. Traders and investors
participating in the new exchange traded CFD market can look forward
to enjoying the traditional benefits of leverage with reduced spread
and greater liquidity than that employed by third party providers
under the current direct access and market maker models.
OTC Contracts for Difference:
The leverage provided by contracts for difference products has added
greater diversity to the markets for traders that have been constrained
by lack of access to futures alternatives. With index and sector
alternatives, investors can often take positions with as little
as 1% margin. CFD's have grown in popularity in countries such as
Australia and the United Kingdom. The benefits of contracts for
difference are magnified in short markets which permit traders and
investors to collect interest on their holdings. The full implications
of long, short and corporate actions are the subject of additional
articles provided by this site.
Exchange Traded
Funds:
Exchange traded funds have grown in popularity, particularly in
the US where investors have capitalized on the ability to trade
these securities long and short. With foreign emerging markets enjoying
unprecedented gains, investors have been keen to gain exposure to
a basket of foreign stocks. Unlike directional one way positions
on stocks, exchange traded funds comprise a basket of stocks which
provides a built in risk buffer against exogenous shocks that can
affect individual stocks. ETF's are also constructed on commodity
based products that would otherwise require participation via futures
or options. With the ability to purchase on margin and use in combination
with other exotic strategies, exchange traded funds are likely to
continue to grow as more investors discover their benefits and they
are adopted more widely on exchanges through out the world. There
are additional articles provided throughout this site which introducers
the reader to the types of available ETF's.
Funds:
Mutual funds and managed funds also feature heavily in the investment
landscape. Suitable more for long term investing due to their heavier
fees, they are used extensively as part of retirement strategy allocations.
These funds are constructed on domestic and foreign constituents
and provide the ability for investors to diversify their portfolio
into other asset classes. You can learn more about funds by reading
the articles provided by this site.
Currency
Trading:
Currency trading enjoys world wide participation from inter-bank
and retail traders who enjoy the twenty four hour action provided
by the currency markets. With the rise of Forex, this has contributed
to additional interest in currency pairs. Currency based products
will continue to benefit from the introduction of new financial
instruments. Exchange traded contracts for difference on cross rates
is an example of this.
Futures
Trading:
Futures trading enjoys extensive participation from professional
bank, financial institution, proprietary and retail traders. Attracted
to the benefits of leverage, futures trading tests the resolve and
risk management skills of traders at all levels. You'll find additional
resources throughout this site for further information on commodity
futures, research avenues to pursue and places to seek information
about learning futures trading.
Stocks:
Stock trading is enjoyed by investors and traders both young and
old. The United States Markets are considered the powerhouse of
the stock arena due to extensive and diverse range of listed securities.
Many international companies seek listings on the US exchanges due
to the advantages of international listing, access to capital and
less regulatory compliance than domestic exchange counterparts.
Traders enjoy the markets due to greater security choice, liquidity
and operating hours which are convenient for European traders.
Online
Trading:
The internet has changed the trading and investing landscape by
providing greater access to information, new technology and cheaper
commission rates. This has also contributed to the acceleration
of globalization. With the current bidding wars going on between
rival exchanges, this is set to continue as exchange agreements
facilitate access and the creation of new products.
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