What is CFD Trading?
Contracts for difference (CFDs) are a derivative product, and the underlying assets include forex, indices, cryptocurrencies, commodities and shares. These products enable the customer to speculate on the market and to trade on the price of movements without buying or selling any underlying assets.
A CFD agreement is made between the two parties to exchange the difference in value of an asset between the opening of the contract and when it is closed. The asset or instrument which you choose to trade cannot be owned. You will still benefit if the market moves in your favour, similarly you will also be making a loss if the market moves against you.
CFDs are a leveraged product, this means in order to open a position you will need to credit a small percentage of the full value of the trade you have chosen. The term for this is known as ‘trading on margin’. It is important to understand when you trade on margin, any profits or losses will be magnified. Therefore you should trade within your means and manage your risks accordingly.
What are the advantages of CFDs?
No stamp duty on a CFD trade*
This is because you are not taking physical ownership of the underlying asset
CFDs requires less margin to open a position than a traditional trade
Your money will not be tied to one transaction, as you can trade without having to deposit the full value of a product. It is important to note when you trade on margin any losses will be magnified as well
Trade on rising and falling prices
With CFDs you are able to short-sell, meaning there are opportunities to benefit from both rising and falling markets
* Tax laws are subject to change and depend on your individual circumstances. You should seek independent tax advice before making investment decisions.
