LONDON May 23, 2012
What is CFD Trading?
A CFD (Contract for Difference) is an agreement between two parties to exchange the difference between the opening and closing price of a contract.
CFD trading enables investors to potentially profit from a market’s movement regardless of if it is rising or falling.
How do Investors Trade CFDs?
As mentioned above; they can profit from a market that is both rising and falling.
For example, if they expect a market to fall they sell (go short), allowing them to profit from a falling price. Alternatively, if they expect the market to rise, they buy (go long) – similarly allowing them to profit from a rising price.
In addition, investors use CFDs to hedge their portfolios; allowing them to offset any potential loss in value of their physical investments.
CFD Trading vs. Traditional Trading
- Free from Stamp Duty*
- Leverage Feature
- Go Long
CFD Leverage Example:
For example, say you wished to purchase 5,000 Barclays shares and its current share value is 250p.
The leverage or ‘margin’ rate for Barclays when trading CFDs with City Index is presently at 15%.
Therefore, you are required to pay 15% of the total trade value.
This means that you pay an initial deposit of £1425, i.e. 5,000 x 190p x 15%.
So essentially for an initial deposit of £1,425, you have gained exposure to a £9,500 (5,000 x 190p) position in Barclays.
Why do Investors Trade CFDs with City Index?
City Index constantly looks to improve the performance of their platforms and expand their range of services.
*CFD trading is exempt from UK stamp duty. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.
SOURCE City Index