CFDs
What are Contracts for difference?
Although individual Stock Index futures have been available for many years, CFDs are still a relatively new concept for the non-institutional trader, bearing similar properties to futures contracts but with no expiry. CFD's are proving to be one of the more popular ways of providing flexible and cost effective exposure to individual equities without having to trade in the underlying share.
CFD's, are at present revolutionising the way that we both trade and look at equities. Now the individual can enjoy not only the flexibility that CFD's offer but can also take advantage of leverage and its benefits.
- Flexibility - Trade short as easily as long, trade CFD's on UK and European stocks down to a market capitilisation of £10 million, and all major US (incl. Nasdaq)
- Cost - Typically, 0.5%, No Stamp Duty.
- No settlement period - both long/short trades can be kept open indefinitely (dependent on margin requirements).
- Receive 90% of dividends on long CFD's.
- Leverage - Typically 10-1 leverage on most FTSE 100 stocks. £10,000 controls a nominal value of £100,000.
- Risk Management - Hedge your risk, manage CGT liabilities.
- Direct access to the SETS order book.
Another major benefit of trading a CFD is that the client can trade on margin. CFD trading means clients can trade a full portfolio of shares without having to tie up large amounts of capital.
CFD's enable clients to short sell stock as well. Short selling shares, or benefiting from a fall in price has long been the advantage of the bigger Institutions. Individual clients can now enjoy the total flexibility that short CFDs offer.
Equity Performance
As with shares, CFD investors benefit from normal market movements. Buyers will benefit if the value of the contract/shares increases, similarly, a short seller will benefit from any fall in value. The holder of a long/short CFD can close his position any time during regular Stock Market hours. Clients' open positions are valued every night at the close of business. Profits or losses will be credited/debited to the client's margin account each day. Corporate actions are applied to the client's account when they occur. Clients receive 90% of the gross dividend the day after the company goes ex-dividend, or pays 100% of the gross dividend if he has a short position in the stock, when it goes ex-dividend.
Warning
Your investments and any income from CFDs can go down as well as up. You can quickly lose more than your initial deposit. Please make sure you understand the risks. CFDs may not be suitable for everyone.