What is the difference between a normal CFD – a Contract For Difference – and a Single Currency CFD?
CFD = Contract For Difference
SCT CFD = Single Currency Trading Contract For Difference
Let us explain what a Single Currency CFD is
When you trade a normal CFD, your “stake” will always be determined by the product you are trading. When you trade a Single Currency CFD, your stake will always be determined by your choice of currency to trade in, no matter what you trade.
You live in Australia and your account base is in Australian dollars. When you trade say the DAX index, you will have to nominate your stake size per point in Euros with a normal CFD, because the DAX is traded in Euros. When you have a profit or a loss, this then gets converted back to Australian dollars.
With a Single Currency CFD account, you will only ever trade in Australian dollars, no matter what you trade. It means your “stake” will be in Australian dollars, even when you trade, say the DAX (normally in Euros), or the Dow index (normally in US Dollars), or Dollar Yen (normally in Yen per point).
No matter what you trade, your stake size and thus your profit and loss will be calculated in your own currency.
Say your base currency is Euros, then you are already trading in Euros, so the DAX will be evaluated in your base currency, but if you trade the FTSE, then you would normally have a stake size in Sterling, and when you trade the Dow, you will be trading in US Dollars. Now you will be trading it all in Euros. Your stake size in the Dow will be placed in Euros.
Why is this smart?
- You never have to worry about converting your profits or losses from a foreign currency to your own currency.
- There are no foreign exchange conversion fees as a client does not have to swap between currencies when trading different instruments.
- It is so much easier to determine how much you want to risk per trade, based on one’s own currency, than in foreign currency.