CFD Trading vs Binary Options Trading

Hello everyone, today I want to talk about CFD’s or Contract For Difference. I will also discuss one higher probability trade I made today. I hope everyone had a good day and I’m going to discuss CFD’s with intent to answer any question you may have about them.

Contracts for Difference are available by many of the same brokers that offer Binary Option trading. They consist of a contract between the broker and trader where the broker pays the difference between the value of the asset at the strike price and its value after the contract is closed. You can profit from a rising or falling market conditions, much like binary options. Like Binary Options you do not own the asset, but these trading vehicles mirror the asset or index.

Now CFD’s on Commodities, securities, Gold, Oil, etc. are not allowed to be traded in the USA with the exception of FOREX. FOREX does not have a regulated exchange so technically it can be traded in the US with no restrictions.

There are differences and similarities between CFD’s and BO’s. The similarities include small start up capital, so you don’t have to have a ton of money to trade them and they both are geared towards short term trading. The differences are more pronounced, since BO’s have a fixed amount of risk per contract, but CFD’s allow you to use leverage, so it can be a double-edged sword. Another difference is CFD’s can be closed at any time whereas BO’s have a fixed expiry. CFD’s also have contract fees and interest charges much like other forms of trading.

It really is up to you if you decide to trade CFD’s or BO’s, me personally, I’m sticking with BO’s until I am profitable with them, then I will move on to other forms of trading, and CFD’s may be one of them.

 

So I hoped that taught some new traders out there a thing or two about CFD’s, now lets move on to my trade for the evening. My trade was on my usual pair, AUD/USD, and price was rallying up, so I waited for a correction. After a swing was formed I drew a Fibonacci line from the bottom of the swing to the top, to identify possible S/R levels. As I waited, I noticed price was returning to the yellow 20EMA, and I looked for a bounce. To add to the confluence, the 180 and 365 EMA’s had crossed recently, and the Value Chart was at ideal levels. I placed a Call when the first candle you see with the arrow touched the 20EMA and also the 61.8 Fib retracement. It was ITM by around 2 PIPS. Confluence just adds to the probability of the trade being in your favor.

AUD_USD 5min 1-28-13