Here we have compiled a list of commonly used terms in CFDs/Forex trading:
Leverage increases your purchasing power hence enables you to gain a large exposure to a financial market while only tying up a relatively small amount of your capital.
CFDs are leveraged, which means you only have to put down a small deposit for much larger exposure.
Leverage increases your profit potential and the risk of losing your capital.
When trading CFDs on leverage, you must maintain a certain level of funds in your account (the necessary margin), also known as a good faith deposit. Calculating and understanding your necessary margin requirements beforehand allows you to apply good risk management and avoid any unnecessary margin calls resulting in the closing of a position due to not enough margin in your account.
The margin of 24option CFDs will be the invested amount you select prior to opening the position.
Margin Call refers to the situation where the broker requests for additional funds to cover losses from your loss making positions. Failure to meet margin calls will lead to automatic closing of your positions. For retail clients the margin close out is set at 50% of the initial required margin on a per position basis.
Is Leveraged Trading Risky?
Even though you only put up a relatively small amount of capital to open a position (initial margin), your profit or loss is based on the full value of the position (Invested Amount * Leverage). So the amount you gain or lose might seem very high in relation to the sum you’ve invested. However, it should always be kept in mind that leverage not only magnifies your potential profits but also your potential losses. Additional information about the maximum loss or gain from each position can be found below.
Trading Profit and Loss Calculation:
Pip value: is an important component of the P&L calculation and will be given to you by the platform prior to opening your position.
Pip value for Forex (other than JPY) = Lot Size * Number of lots/10000. For example, if you buy 1 lot EURUSD the pip Value is calculated as 100000*1/10000 = 10. Note that Pip value is calculated on the quote currency (USD in the example)
Pip value for Forex where JPY is the quoted currency = (invested amount * Leverage) / open price / 10,000
Pip value for Equities and Commodities = (invested amount * Leverage) / open price / 100
Profit and Loss Formula for a buy order = (Close Price – Open Price) *10000 * Pip Value
Profit and Loss Formula for sell order = (Open Price – Close Price) *10000 * Pip Value
You can set pending/future orders for entering into a position when the actual price will reach your target/set price.
Buy Limit: an order to buy at a specific price that is lower than the current one.
Sell Limit: an order to sell at a specific price that is higher than the current one.
Note that there are restrictions of how close your pending order price could be from the current price. Moreover, please note that if your trading account does not maintain the adequate and/or required initial margin, the pending orders will fail to open.
Take profit: is a pending order at a predetermined price to exit a profit making position.
You can set or change your take profit price (or amount) at the start or/and during the period of your position.
We recommend to check the take profit price prior to opening a position.
Note that there is a limit on the range between the open price and the take profit price.
Stop loss: is a pending order at a predetermined price to exit a loss making position.
You can set or change your take stop loss price (or amount) at the start or/and during the period of your position.
We recommend to check the stop loss price prior to opening a position.
Note that there is a limit on the range between the open price and the stop loss price.
Close Manually: you can close your open positions manually by pressing the close button at the right side of your open trades section.
Spread is the difference between the bid (sell) and ask (buy) price. The difference is presented in pips and reflects the cost of opening a position.
The related cost will be spread pips * pip value.
Swap is the interest deducted or added from the Profit/Loss of your position and is only charged when a position is held open overnight.
Swap charge formula: Number of lots * swap rate.