With a CFD, you never actually own the asset or instrument you’ve chosen to trade, but you can still benefit if the market moves in your favour. This is because a CFD is a derivative product which has a value based on an underlying asset.
It’s always important to manage your risk responsibly while trading CFDs.
Sometimes, due to market factors, you might not get the exact price at which you intended to trade, but a less favourable price instead – even with a non-guaranteed stop. The difference in points between your desired price and the price that you deal on is called the amount of slippage.
The following factors can cause slippage:
- A fast-moving market
- An illiquid market without enough people willing to carry out the other side of the trade
- A large number of stops placed around the same level
Slippage is one very good reason to use guaranteed stops on all positions you open.
Share Prices Movement
There are a few way of taking advantage of moving share prices two of which are CFD trading and financial spread betting. Share prices may stay fairly stable for months, or move rapidly. The amount a share fluctuates is known as its volatility.
There are a number of factors that influence volatility:
Supply and demand
If more peoplewant to buy a share than sell it, the price will rise because the share is more sought-after (in short, the ‘demand’ outstrips the ‘supply’). Conversely, if supply is greater than demand then the price will fall.
This is the profit a company makes. If the earnings are better than expected, the share price generally rises. If the earnings disappoint, the share price is likely to fall.
Perhaps the most complex and important factor in a share price. Share prices generally react most strongly to expectations of the company’s future performance. These expectations are built on any number of factors, such as upcoming industry legislation, public faith in the company’s management team, or the general health of the economy.