There are several different types of financial products. Stocks and bonds are the most widely known, while alternative assets such as commodities, forex, and cryptocurrency also are part of a well-balanced portfolio. Generating returns that are larger than historical benchmarks is a challenging endeavor. Not only do you have to have an excellent strategy to outperform the broader markets, but you will also need the ability to use leverage. One of the best ways to employ leverage is through a CFD broker. Here is a review of one of the most widely used CFD brokers and some of the pros and cons of using this company.
What are Contracts for Differences?
Before we delve into the different brokers and the pros and cons of trading CFDs, it might be worth exploring what contracts for differences are since many newer traders want to know what is CFD trading. Contracts for differences (CFDs) are financial security that allows you to trade on the direction of an underlying asset without owning the underlying asset. CFD trading was introduced approximately three decades ago, providing margin traders with a way to pursue potential profits.
Leverage is a product that allows a trader to magnify their trading power using a relatively small investment. You can use leverage within a margin account. This is accomplished by post-equity, which equals an unlikely loss instead of having to post enough equity to purchase a stock or forex. While leverage can be a useful tool for CFD traders, it also cuts both ways, enhancing losses in the same way as potential gains, and must be used with knowledge.
Contracts for differences started about 30 years ago as a product that could allow hedge funds to enhance their returns. Nearly a decade later, CFD trading became popular with retail traders. CFD trading initially focused on stocks and then moved to forex and other products such as ETFs, indices, commodities, forex and cryptocurrencies.
Trading at iFOREX.com
A widely used CFD broker is iFOREX.com. iFOREX.com is a regulated CFD broker offering several different platforms. The company was founded in 1996 and offers over 750 tradeable instruments in multiple markets. The company provides CFDs on Forex, indices, and commodities with a minimum initial deposit of $100 and a maximum leverage of 400:1, depending on the instrument. The multi-asset feature is a strong point of the iFOREX.com product. Instead of having a broker that will allow you to trade forex on one platform and CFDs and commodities on another, iFOREX.com offers all its products within one platform.
The benefits of leverage are substantial since you can use a portfolio approach to margining. If your forex trade is producing an unrealized loss, and your CFD position is producing an unrealized gain, your positive margin equity will offset your negative margin equity shortfall.
On the home page, the company says there are more than 8 million users and more than 35,000 daily transactions.
They also offer support in more than 16 different languages. In contrast to many other CFD brokers, which is refreshing, iFOREX.com does not utilize either MT4 or MT5 Whitelabel products that use a customized version of the Metaquotes platform. Metaquotes MT4 and MT5 were recently removed from the Appstore due to an issue related to a cryptocurrency hack. Rather, iFOREX offers clients a proprietary CFD trading platform built in-house using a combination of the latest trading software technology and feedback from real traders. The result is a sleek, streamlined platform that’s easy to navigate and includes a wide variety of trading tools and features.
iFOREX supports two currencies to deposit money into your account: the US Dollar and the Euro. There are no trading fees. iFOREX does not charge an additional commission structure. There is an inactivity fee after a year. You can reach iFOREX support via phone and email.
The Trading Platform
The web browser-based platform is streamlined and straightforward. The menu access tells you how to get started and enter the trading platform, as well as displays any promotions, news, and updates. Under the getting started menu is a pulldown that will bring you to the education center. For beginning traders, this is a great resource that will help you on your way toward learning how to trade. Lower on the home page is a button that asks you if you want to register for free access. One of the benefits of iFOREX.com is they offer a demonstration account. Additionally, iFOREX.com describes how to trade both with and without leverage with a wide array of non-leveraged instruments.
To receive leverage using iFOREX.com, you’ll first need to apply for a margin account, after which iFOREX.com will check some personal information, which will provide a basis for determining whether to issue a margin account. When you use a margin account the collateral, in this case, is the CFDs.
The amount of capital you will post is based on a formula used by iFOREX.com to determine an unlikely amount that can be lost in your account, given the CFDs you own. Once you reach that amount, iFOREX.com will ask you for more capital to cover a potential loss.
iFOREX.com does not absorb your losses. If the equity in your margin account falls below a critical level, you will be asked to increase your equity. This situation is referred to as a margin call. If you cannot immediately add equity to the account, iFOREX.com will likely have the right to liquidate your positions.
The Mobile Platform
iFOREX.com provides a very sleek mobile trading experience for its clients. The mobile app allows you to trade from any mobile device using cellular or WiFi. iFOREX.com provides a platform on iOS and Android.
A Demo Account
iFOREX.com offers a demonstration account that allows you to conduct virtual trading without risking real capital. You can transact using real-time data, which can help you test trading strategies and test-drive the platform before you start to risk your money. For new traders to iFOREX.com, this feature is an excellent way to become accustomed to the platform.
The add and withdraw process is straightforward. Under the payments menu, they ask you to select the method you would like to use to add capital to your account. They offer many credit cards, including Visa, Mastercard, and Diners. They also allow you to use E-Wallets such as Neteller, Skrill, and Paysafecard.
The Educational Portal
One of the most intriguing features is the educational portal. In this section, there is a list of videos and articles for both beginner and advanced traders. iFOREX.com appears to be committed to educating traders on the different techniques that can be used to trade the CFD markets. There are ample articles on technical analysis strategies, everything from support and resistance levels to momentum trading strategies.
There is also detailed information about risk management. Here you can learn about how much you might consider risking to generate the potential reward you would like to receive. There is a discussion about using stop losses in your trading strategy to ensure that you don’t let your losses pile up.
The Bottom Line
Contracts for Differences (CFDs) are financial instruments that track the movements of underlying assets. When you purchase a CFD, you are not purchasing the underlying asset. Instead, you are buying an instrument that tracks its movements and, therefore, usually do not have to post as much capital in your account to follow the underlying trends of an asset.
CFD started trading in the early 1990s and quickly spread to the retail market by the 2000s. You can trade many assets using CFDs including forex, commodities, indices, stocks, cryptocurrencies, and ETFs.
CFDs offer investors leverage and allow them to enhance their potential gains. One of the best ways to access CFDs is through a reputable broker. iFOREX.com is a CFD and forex broker that provides various products to trade CFDs.
iFOREX.com was created in 1996 and launched as a browser-based website in 2004. They have a widely used mobile application that can be used anywhere you have cellular or WiFi access. iFOREX.com has a robust educational portal. They list several different CFD trading strategies, including using technical analysis. You can pair trade, purchasing one asset and simultaneously selling another asset. It also discusses using technical and fundamental analysis to trade your portfolio. They also provide a very robust demonstration account. The website is streamlined and a robust choice for new and experienced traders.