CFD Spread Explanation

When we speak of a spread, we always mean the difference between the buying and selling price. In the case of CFD spreads, this means the difference between the start and end time of an agreement. A spread therefore determines the profit and loss of a CFD agreement to a certain extent. Therefore, it is worthwhile to choose brokers with low spreads, such as exness forex, for trading in advance.

CFD leverage explanation - what is leverage and how does it work?

It doesn't matter whether you are trading on a falling price with a short position or on a rising price with a long position: In both cases, you can use so-called levers, which enable large profits even with a small capital investment. Unfortunately, however, this also works in the opposite direction; depending on the leverage, large losses can occur. Losses occur when the price has not developed as expected. This means, for example, with a long CFD, that the price has not risen as desired, but has fallen.

Losses are particularly severe if a large leverage was previously selected. The smaller the leverage, the lower the losses. But leverage cannot be used just like that. If you want to use them, you have to deposit a kind of security known as margin. This margin goes to the respective trading partner and varies depending on the underlying asset and financial instrument. A distinction is also made between private and professional traders when it comes to leverage.

Private traders may use a maximum leverage of 30, whereas professional traders can trade with significantly higher leverage. For this reason, it is possible for professionals in particular to make large profits even with small price fluctuations. The restriction of leverage for private investors was not decided for no reason. Investors who have little capital are quickly tempted to choose a particularly high leverage in order to achieve the highest possible profit.

But it is precisely this approach that can lead to a total loss, and this restriction is intended to protect them from this. This was obtained from the European Securities and Markets Authority (ESMA) and also means that the margin call is excluded for private investors who live in Germany. This means additional protection against high indebtedness or a total loss. However, even if a lot is done by the authorities to protect investors from losses, this is no guarantee of profits.

CFD trading leverage

Similarly, extensive knowledge and familiarity with a CFD trading leverage statement does not provide protection against losses. The financial market is extremely uncertain. Especially when it comes to trading prices, joy and sorrow are close together. So what general recommendation can be made to trade with leverage as safely as possible?

Basically, it is advisable, especially for beginners, to choose the lowest possible leverage and to take advantage of the expertise of experienced traders. The fees for trading CFDs should also be taken into account. These can also vary depending on the leverage and can reduce profits or increase losses.

•     Leverage can be used when trading CFDs to achieve greater profits.
•     In order to trade with leverage, a security deposit, the margin, must be provided.
•     The possible size of leverage for private traders is smaller than that for professional traders.
•     Leverage works both ways and can therefore mean big profits, but also big losses