US financial markets are highly regulated and in some cases restricted. One of those restrictions covers US clients access to OTC (Over The Counter) derivatives, such as CFDs (Contracts For Differences). Effectively US citizens or residents are embargoed from trading these instruments and CFD providers from opening or holding accounts for the same. Where US citizens and residents can trade OTC products,such as Margin Forex, they must do so through an entity that is regulated in the USA itself. This means US retail clients are “off limits” to the majority of European and Asian brokers.

Outside Looking In

But even though traders in the USA are not able to access and take advantage of the benefits of CFD trading. Traders outside of the USA can trade US markets via CFDs and Margin Forex. That access presents traders with significant opportunities in some of the world's largest investment pools. For example more than US$ 7.00 trillion worth of investments are benchmarked to the performance of the top 500 US equities via the US500 equity index The US 500 index has itself enjoyed an almost unprecedented seven year bull market and has recently reached new all time highs. That trend may or may not continue but either way there are likely to be ongoing opportunities for traders in the US markets. Furthermore technology is becoming more and more integral to our daily lives, the rise of cloud computing and its associated services are becoming indispensable to modern businesses. These are traits that are reflected in the performance and composition of the US 100 index, which tracks the performance of the top 100 US Tech shares.

Special Relationships

Of course the US Dollar, in its role as global reserve currency, is the backbone of the Forex market. The Dollar is involved in 88% of all Forex trades, according to the latest data from the Bank for International Settlements or BIS, the central bankers bank. That level of participation puts the Dollar and Dollar denominated assets centre stage in the world's markets and has over time created many intrinsic relationships. For instance the Dollar is seen as safe haven currency and is therefore often a destination of choice for cash during volatile or risk off periods in the markets. A strong US Dollar has also often been seen as being negative for commodity prices. Such as Gold Silver and Crude Oil and for commodity related currencies, such as the Canadian and Australian Dollars.

Change at the Top

US markets are of particular interest to investors right now as we are about to witness a change in government. With a new president and change in the ruling party after 8 years of Barack Obama and the Democratic party. Donald Trump, a Republican, will enter office as probably the most controversial President elect ever. His unorthodox and anti establishment approach to politics, which played so well with US voters, has left political and market analysts feverishly trying to understand what a Trump presidency will really mean. For both the USA and its relationships with the wider world. In truth we don't have a clear picture yet and perhaps we won't until the new administration is firmly in office. There is an old adage that the first 100 days of a Presidency sets the tone for the full four year term of office. That may never be truer, than in this instance. Once again traders will be watching what happens in Washington very carefully as Mr Trump's radical agenda has the potential to throw up plenty of curveballs and associated trading opportunities.

Many Markets, One Account

Blackwell Global provides its clients with the ability to trade more than more than 60 products including US Equity indices, FX pairs Gold, Silver and both US and UK Crude Oil. All from one account and one trading platform. Full details of our offering can be found under the products tab on our home page. To discover more about how traders can access US indices and Dollar centric products and trading opportunities, why not apply for either a Demo or Live CFD trading account and download our platform today.

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CFDs are also known as Contracts For Differences. A phrase which in its broadest sense describes any financial contract that is settled in cash, rather than via the delivery of the underlying securities or instruments, that the contract is over. The first CFDs were exchange traded futures, on stock indices and interest rates. It had been realised that many participants in financial futures markets would not necessarily want, or need to make or receive delivery of the underlying instruments. For example the individual UK top 100 shares. But rather that the participants would prefer to be exposed to just the pure economic benefits of ownership. Or in plain english to changes in the price and value of the contract.

A Great Insight

The idea sounded complicated but it was in fact quite a simple premise. Counterparties (the buyer and seller) to a trade paid each other,via the exchange /clearing house, the difference between the opening and closing levels of a trade. So for example if you were long I.E. had bought the contract and the price rose above your entry level, then you had running profit. Close that position and you would receive the monetary difference between your opening and closing prices, multiplied the number of contracts you had traded. Of course conversely if you bought the index and the price moved against you, I.E. went below your entry price. Then you would have a running loss and if you closed the position at that point, you would then owe the clearing house the monetary difference between the opening and closing prices of your trade, multiplied by the number of contracts you had traded.

Brilliant Timing

In the late 1990s it became apparent that this CFD structure was applicable to a whole range of other financial instruments. That included Forex ,Commodities, Precious Metals and more. Further that CFDs need not be exchange traded and could in fact be traded OTC or Over The Counter electronically between traders. That insight would give rise to massive growth in the popularity of CFDs as a product. Coinciding as it did with the emergence of the World Wide Web and ready access to the internet from people's homes and places of work. There was more innovation as well. CFDs were offered as leveraged products. Meaning that CFD traders could “gear up” their capital via their broker and then trade and control much larger positions than their account size would otherwise allow. Add this to the fact that CFDs allowed traders to take long or short positions with equal ease, without the need to worry about delivery or settlement and you have a winning formula. In return for the provision of leverage the CFD broker charges their clients interest on the money that they have leant to them. These charges are known as rollover swaps and are applied on a daily basis to CFD positions, held open “overnight”. Further details about these charges can be found here under CFD Spreads and Swaps .

Leveling the Playing Field

This was nothing short of a revolution as far as retail traders were concerned. The combination of internet connectivity, state of the art trading software, the flexibility of CFDs and the availability of leverage, meant that private individuals now had access to the same information and tools, that prior to this point, had been the preserve of institutional and professional traders. Retail traders could now trade in the same way that “ hedge funds” did I.E. take on long (buy) and Short (sell) positions, across multiple asset classes (Equities, Commodities,Forex and Metals) and use leverage to magnify their resulting profit or loss profile. Of course access to such sophisticated strategies and or the means to create them, meant that retail investors had to take the time to learn about the markets and their relationships with each other. About how leverage works for and against you. As well as familiarising themselves with the functionality of their trading platform.

Help Is At Hand.

That's quite a learning curve (but then every day in the markets is) but it is not an insurmountable one. Particularly when you are offered the right support in the right environment. In fact Blackwell Global offers its clients access to dedicated resources that are specifically designed to help them learn about and familiarise themselves with the financial markets. These include a free Demo Account in which clients interact with the markets in a highly realistic simulation of live trading. But without risking any real money. Clients can open and close CFD positions, place pending CFD orders, create CFD price charts and develop their broader CFD trading strategy risk free. Blackwell Global also provides its clients and prospective customers with access to trading guides, such as this CFD starter kit. Alongside regular research and analysis from both inhouse and external analysts.

Plugged In

As we noted above CFDs are today mostly traded OTC (or over the counter) electronically between the counter-parties to a trade. To participate in this electronic marketplace you need access to a brokerage account and trading software. Blackwell Global has just such a platform in the shape of Blackwell Trader MT4 The platform displays real time prices for all CFDs and Forex pairs and crosses, offered by Blackwell Global. It comes pre-loaded with sophisticated charting tools and indicators. Many of which can be applied to CFD trading strategies. Why not register for and download our free CFD starter kit and a free Demo CFD Trading Account to find out for yourself just what CFDs are and how they could work for you as part of your investment strategy.

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CFDs or Contracts For Differences and margin Foreign exchange are by their nature geared or leveraged products. That is the provider offers its customers leverage on the accounts they open to trade these products. Leverage ratios may vary by product, or as here at Blackwell Global by account size and clients will need to maintain a minimum amount of cash and free equity to operate their account. However clients can minimize the amount leverage that are exposed to or utilise when trading CFDS or Forex.

Just Ask

The first thing you can do if you would prefer not to trade on a highly leveraged basis is ask your provider to reduce the margin level they have allocated to your account. If they are able to vary the leverage at an account level, then they should be a happy to do.

Manage Your Risk

The second course of action you can take is to follow a disciplined approach to your own risk and money management and to apply this discipline to every trade you make .To do this you will need to gain an understanding of the contract sizes and margins for each of the products you trade or intend to trade, because you will need to relate this information back to your account size and available resources. To put it another way in order to trade Forex and CFDs with minimal or no leverage you will need to ensure that your total exposure is less than the free equity or better still free cash on your account. So if you have a $10,000 on your account and wish to trade leverage free. The maximum total exposure you should allow yourself is $10,000 or other currency equivalent of underlying value.

Caveat

There is a caveat here - because whist it should be possible to define your risk / exposure when trading on the long side - where the maximum loss you could suffer would be the difference between your entry price and Zero, multiplied by your trade size. But if you are trading on the short side, you face a theoretical open ended exposure or risk of loss. Because there is no upper bound or maximum value that the price of the instrument, we are short of could reach. Of course this is true of nearly all short positions leveraged or otherwise, but is a factor that we must take into consideration.

Stop Losses

One way we can seek to limit our exposure and by extension our use of leverage is through the application of stop losses. Stop loss orders set a floor or cap on the amount of risk you are exposed to. For instance if we are long of $5000.00 worth of an underlying instrument and you place a stop loss 10% away from the trade entry price, then your maximum theoretical loss would be $5000.00 * 10% or $500.00. I say theoretical because the stop loss order, as when and if it is triggered, will be executed at the next available price. In adverse or illiquid market conditions however that price could be very different from the stop out level that was nominated. Which would therefore increase your maximum potential loss, through a process known as slippage.

Risk versus Reward

The reason that CFD and Forex traders like to use leverage is because leverage has the potential to magnify the profits that they make. It also allows them to trade from a smaller capital base or to take on a larger number of positions than they might otherwise be able to do. Of course leverage can just as easily magnify trading losses.This is part of the trade off between risk and reward. In general it's accepted that higher risk should be accompanied by a higher reward. This concept is not cast in stone but it should be a building block of your trading strategy. You should build a favorable risk reward ratio of at least 2:1.Such that you can profit by at least twice the amount you risk in every trade you open. If we adopt this risk & reward based approach then we should have fewer problems in managing our exposure and therefore our use of leverage.

A Loss Greater Than Your Deposit

However if we use undisciplined approach to trading Forex and CFDs we could quickly find ourselves on the other end of this equation. If for example we have taken a position which is “too large” for our account balance we have severely limited our ability to absorb running losses or if you prefer to maintain the required margin or deposit to support the position. The larger the underlying position relative to the free equity / free cash on our account then the smaller our tolerance to a running loss is. If the size of of our underlying position is greater than our free equity or free cash balances then we are, by definition in a leveraged trade. The bigger this multiple is, then the smaller the price move required to take us initially to a margin call situation and then to a stop out. Whilst brokerages such Blackwell Global operate a strict margin and stop out policy in order to try and prevent negative equity . As we noted above, illiquid and adverse market conditions can result in slippage and or gapping in price formation and therefore to losses that are larger than anticipated. In a worst case scenario, with a highly leveraged account your losses could significantly exceed your deposit and you would be liable for the balance.

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