- What is Equity CFDs?
- How Equity CFDs work?
- Example of Equity CFD trading
- What is DMA Equity CFDs
- DMA Liquidity for Equity CFDs
As used on a trading account statement, refers to the residual dollar value of a futures or option trading account, assuming it was liquidated at current prices.
What is Equity CFDs?
Equity CFDs are simply a CFD which mirrors the price movement of the underlying share or stock on a listed stock exchange.
Equity CFDs are amongst the most popular of the CFD instruments.
For most traders, Equity CFDs are the first step in the natural progression from share trading into CFD trading.
How Equity CFDs work?
The concept of equity CFDs is very simple.
An Equity CFD trader simply buys or sells a CFD over any equity listed on a stock exchange and receives the difference between the opening and closing price of the contact.
CFDs are a leverage product therefore a CFD trader gets the additional benefit of only outlaying a portion of the capital and also has the ability to short sell a number of stocks on various exchanges to profit from falling markets.
Example of Equity CFD trading
For example, a trader wants to invest in VOD.
However, if the trader believes the price of VOD would rise then they would buy a parcel of VOD CFDs and only have to outlay a 5% margin requirement of the full notional value of the position.
As VOD reached the desired price, the trader would simply sell the same position leaving the CFD trader with all the profits gained from that position less financing charges and commission.
What is DMA Equity CFDs
DMA brokers such as FP Markets offers its clients access to Direct Market Access (DMA) equity CFDs.
In this case, unlike most CFD providers, clients of DMA brokers have access to prices which directly mirror prices from the underlying corresponding exchange.
As a result, such traders can access the full market depth, buy and sell orders in the market for that stock, and participate in being a price maker not just a price taker.
DMA gives traders the ability to participate in opening and closing market auctions and are able to trade the opening and closing prices of a stock.
DMA equity CFDs also means traders can access volumes in markets to confirm their trades, help with trading strategies and with equity CFD trading there are no re-quotes.
DMA Liquidity for Equity CFDs
Because brokers such as FP Markets offer Direct Market Access for its equity CFDs, these traders get access to liquidity which mirrors the underlying exchange.
100% of all trades are hedged in the underlying market which means these traders have complete transparency in the markets.
By having liquidity that mirrors the underlying exchange, traders are able to see volumes available at each price step and can therefore make a decision to participate or not without being re-quoted.