Option 4: CFDs on gold, oil and stock indices

Many forex brokers also offer CFDs on gold (XAU/USD), silver, oil, and stock indices such as the US30 (Dow Jones), NAS100 (Nasdaq 100), US500 (S&P 500), GER40 (DAX) and UK100 (FTSE). Gold and NAS100 are especially popular with Kenyan traders because they move a lot. That's exactly what makes them risky.

1. What it is

A contract for difference (CFD) is an agreement with a broker to exchange the change in an asset's price between opening and closing the trade. You don't own the gold, oil or shares; you trade the price movement, usually with leverage.

2. How it works: example

Gold is at $2,400. Your broker's contract: 1.00 lot = 100 ounces, so a $1 move = $100 per lot (check your broker's specifications; they differ).

• You buy 0.01 lot (1 ounce): a $15 rise = +$15; a $15 fall = −$15.
• You buy 0.10 lot: the same $15 move = ±$150.

Gold can move $15–$40 in a day, sometimes far more around news. On a $200 account, 0.10 lot of gold can be wiped out in one session.

Indices: if NAS100 is quoted at 18,000 and your broker's contract is $1 per point per lot, a 200-point move (about 1%) on 1 lot = $200.

3. Costs

• Spreads, which can be wide on gold and indices, especially at the open and during news
• Commissions on some accounts
• Swaps/financing for overnight positions (index CFDs usually charge daily financing)
• Dividend adjustments on index CFDs around dividend dates
• Rollover effects on CFDs based on futures (oil, some indices)

4. Risk level: high to very high

• Large moves + leverage → fast, large losses, especially for small accounts.
• Gaps at market open (indices) and around major news.
• Contract sizes vary between brokers; misunderstanding them leads to positions far bigger than intended.
• Like forex, most retail CFD clients lose money.

5. Regulation in Kenya

CFDs are offered through CMA-licensed online forex brokers and through offshore brokers. Check that the specific broker is licensed and which instruments it offers under that licence. Read the contract specifications page for each instrument (contract size, tick value, trading hours, margin).

6. Who it may suit / who should avoid it

• May suit: experienced traders who already manage risk well on forex, understand contract specifications and trade with money they can lose.
• Avoid as a beginner: gold and indices are not "easier" than forex; they're more volatile. Learn position sizing first (risk management).

7. How to learn safely

1. Complete the forex course foundations and risk lessons.
2. Read your broker's contract specifications for each instrument; calculate the value of a $1 (or 1-point) move for your lot size.
3. Use ATR to understand typical daily ranges (indicators) and size positions so a normal day's move can't hurt you badly.
4. Demo trade for months; avoid trading through US data releases and market opens as a beginner.

8. Red flags and scams

• "Gold signals: 500 pips a day", "NAS100 secret strategy"
• Account managers trading gold for you on your login
• Brokers with very high leverage on indices and gold, and no clear regulation

9. Verdict

CFDs give access to gold, oil and global indices without owning them, which is useful for experienced traders. For beginners, they're more volatile versions of forex trading, with contract sizes that are easy to misunderstand. Learn risk management first, use tiny sizes, and remember that long-term exposure to global markets is usually better achieved through ETFs and index funds (global stocks & ETFs).

Check yourself

1. What does CFD stand for? (three words)

   Show answer

   contract for difference

2. What is the common symbol for gold priced in US dollars?

   Show answer

   XAU/USD

3. Do you own the gold when you trade a gold CFD? (yes or no)

   Show answer

   no

4. Which broker document tells you contract size and tick value? (two words)

   Show answer

   contract specifications