We are pleased to introduce to our clients a unique selection of Differential Markets that are now available via our MT4 Prime platform. Based on key Commodity and Index markets, our Differential Markets allow you to adopt a different trading angle – trading the difference between two markets with one single position.
A differential market simply compares the difference between two financial markets.
Our differential markets include:
UK Oil / US Oil differential
US30 / UK100 index differential
Gold / Silver differential
As an example, UKOIL.SEP3 is trading at 10831 and USOIL.SEP3 is trading at 10703, the difference between the two markets is 128. Therefore, ADS may offer a spread for the UK Oil - US Oil differential market of 126/131.
As a result you could trade a CFD on the differential getting larger than 131 or getting smaller than 126.
In short, this differential market is a way of trading the relative performance of the UK Oil against US Oil
In fact, trading on a differential market is the same as trading on one of the markets to rise and the other market to fall, however with a differential trade:
You only hold one position, rather than two, this makes it easier to manage your risk and any trading orders
The combined spread of two distinct trades is larger than a differential. A differential trade offers CFD traders a way of getting a relatively tighter spread.
Note that the OIL differential has a monthly futures market and therefore has a set expiry date. In the above example we considered a SEP differential market so if your trade is still open then the market, and any remaining trades, will be settled on the relevant closing date in August. The US100 – UK100 and the Gold – Silver differentials are both priced off spot and therefore have no expiry, they do though incur an overnight funding charge. For more details, see the trading example below.
Differential CFD examples
When you open a CFD you can choose to either go “long” or “short” depending on whether you expect the price of the instrument to rise or fall.
A 'LONG' TRADE - YOU EXPECT THE PRICE TO RISE
UKOIL – USOIL differential is trading at 126-131.
You think that the demand for UKOIL will be greater than that for USOIL and therefore the differential between the two will rise so you decide to place an order to buy 5 CFDs at 131. This means that for every point the price of UKOIL- USOIL moves, you will enter a profit or loss of $5.
Your prediction was right and the price of the UKOIL rises 100 points and the USOIL only rises by 50 points taking the price to 176-181. You close your position at 176. The difference between your buy price 131 and your sell price of 176 is 45 points, therefore you make a profit of $225 (45 x your 5 CFDs stake).
Your prediction was wrong and the price of the UKOIL only rises 70 points and the USOIL rises by 110 points, making the new spread 86-91. You close your position at 86. The difference between your buy price 131 and your sell price of 86 is 45 points, therefore you make a loss of $225 (45 x your 5 CFDs stake).
A 'SHORT' TRADE - YOU EXPECT THE PRICE TO FALL
The US30.CASH – UK100.CASH differential is trading 8928-8931.5 (Mid-price US30 – 15530, UK100 mid-price 6600)
You think that the outlook for the US economy is poor compared to the UK economy and hence the differential will fall so you decide to place a trade selling 10 CFDs at 8928. This means that for every point the price of the US30-UK100 differential moves, you enter a profit or loss of $10.
Your prediction was right and the price of the US30-UK100 differential falls to 8867-8870.5. You close your position at 8870.5. The difference between your sell price 8928 and your buy price of 8870.5 is 57.5 points, therefore, you make a profit of $575 (57.5 x your 10 CFDs stake).
Your prediction was wrong and the price of the US30-UK100 differential rises to 8948-8951.5. You close your position at 8951.5. The difference between your sell price of 8928 and your buy price of 8951.5 is 23.5 points, therefore, you make a loss of $235 (23.5 x your 10 CFDs stake).
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