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A CFD is a contract on an underlying asset (for example, a share, commodity or currency) to pay or receive the difference between the opening price and the closing price of the asset.
In many ways, CFDs are very similar to the underlying assets on which they are based (e.g. shares). The difference is the leverage, which means movements are magnified.
CFDs: The Main Benefits and Features
* Tax treatment depends on your individual circumstances and may change.
In this example, an investor wishes to go long of (buy) £10,000 worth of Anglo-American shares, currently priced at £10 each. The investor believes Anglo-American’s share price is likely to rise. Accendo Markets offers Anglo-American on a 20% margin, so the investor only needs to invest £2000 (£10,000 x 20%) to open this position using CFDs.
| Opening Trade | ||
| CFD | Standard Shares | |
| Initial | £2000 | £10,000 |
| Total Value of Shares | £10,000 | £10,000 |
| Number of shares | 1,000 | 1,000 |
| Stamp Duty | 0 | £50 |
| Commission (0.25%) | £25 | £25 |
After a ten day holding period, the Anglo-American share price has risen to £11. The investor decides to close the position and realise a profit of £1 per share.
| Closing Trade(Gain) | ||
| CFD | Standard Shares | |
| Overnight Financing Costs* | £9.55 | 0 |
| Commission | £27.50 | £27.50 |
| Total Cost | £62 (£25+£9.55+£27.50) |
£102.50 (£25+£50+£27.50) |
| Closing Value of Shares | £11,000 | £11,000 |
| Total Profit | (£1000-£62) £938 |
£897.50 (£1000-£102.50) |
| % Return on Initial Outlay | 46.9% | 8.97% |
Alternatively, after a ten day holding period, the Anglo American share price could have fallen to £9. The investor decides to close the position and realise a loss. However, a stop-loss was placed on the position at £9.50, reducing the loss.
| Closing Trade(Loss) | ||
| CFD | Standard Shares | |
| Overnight Financing Costs* | £9.55 | 0 |
| Commission | £25 | £25 |
| Total Cost | £59.55 (£25+£9.55+£25) |
£100.00 (£25+£50+£25) |
| Closing Value of Shares | £9,500 | £9,500 |
| Total Loss | £559.55 (£500+£59.55) |
£600 |
*Overnight financing is based on LIBOR, and is therefore variable.
An investor believes the price of British Telecom (BT) is likely to fall, and therefore wishes to short (sell) £10,000 worth of BT shares, currently priced at £1 each. Shorting an asset is a ‘mirror image’ of buying it.
The investor is unable to short the BT shares with a traditional stockbroker, and is therefore unable to capitalise on a price drop using traditional shares.
| Opening Trade | ||
| CFD | Standard Shares | |
| Initial outlay | £2000 | – |
| Total Value of Shares | £10,000 | – |
| Number of shares | -10,000 | – |
| Stamp Duty | 0 | – |
| Commission (0.25%) | £25 | – |
As expected, the BT share price falls to 90p ten days after the position is opened. The investor decides to close the position and take a profit.
| Closing Trade | ||
| CFD | Standard Shares | |
| Overnight Financing Costs* | £7.55 | – |
| Commission | £25 | – |
| Total Cost | £57.55 | – |
| Closing Value of Shares | £9,000 | – |
| Total Profit | £942.45 | – |
| % Return on Initial Outlay | 47.1% | – |
*Overnight financing is based on LIBOR, and is therefore variable. When interest rates are low, negative overnight financing credit may occur. This means that you will pay a small amount of interest to hold a short position overnight.
This example is a profitable trade. As in the previous example, a losing trade would incur the equivalent loss.
As with all investments, there are risks involved in trading on the financial markets. We’ve tried to explain the risks as clearly as possible on this website, with the aid of examples. There are ways of mitigating your risk, such as stop losses. If you need further clarification, turn to the ‘risk warning’ section of this website or speak to an Accendo Markets representative. Of course, trading leveraged products like CFDs can be very rewarding and different trading strategies can be employed to great effect, but careful risk management is essential. Don’t forget that, although profits can be magnified using leverage, so can losses.
‘Cut your losses, run your profits’
A ‘stop-loss’ is a pre-set order to cut a position at a certain level, therefore restricting a loss. With a CFD account you have a choice between three types of stoploss; standard, trailing or guaranteed. However, you don’t have to use them. Some traders/investors have different trading strategies, and prefer not to.
In the scenario below, we use Vodafone (long);
Vodafone Entry Price 174p
………………………………………………………………….
Stop-Loss 167p
If you bought Vodafone at 174, and spotted a strong area of price support (i.e. did not believe that the price was likely to fall Vodafone Entry Price 174p Stop-Loss 167p below this level) at 167, you might set a standard stop-loss at this level. Therefore, if the price falls to 167 (and trades at your order size at this level for an appropriate length of time), the system would automatically close the position for you.
I have found Accendo staff very helpful,,and informed. I have traded with you for some years now and have no regrets. Keep up the good work!
since signing up for Accendo I have had two traders, Mark and Sam. I have found both of these to be very informative about how CFD's work and they have made it very easy for me. Since working with Sam (last four months) my trading knowledge has improved and I can make more informative decisions about which Company's to invest with. Keep up the good work Sam.
I am very happy with the service I get from Accendo Markets and in particular Amrit Panesar. He is very professional and pleasant to speak to and this counts for a lot.
Its a good site for dealing stocks worldwide and having good staff.
Krishan Appiah is one of the most dedicated / informative broker I have ever had.
Since I have been trading with Accendo Markets I have experienced much greater success than has been my experience with other trading companies mainly due to the help given by, what I consider to be my terminal with the trading floor, Mark, who has been most helpful in reminding me of the progress of my positions throughout the day and keeping me in touch with those positions so that I can more easily make successful trades when appropriate instead of missing out on opportunities through lack of attention. He draws my attention to the situations and enables me to make profitable trades. I am very happy with the situation at the moment and am enjoying the experience. Thomas Irving.
Accendo markets keep me connected with the market and its very well followed by Mr. Krishan Appiah ,which helps me to take certain decision on time.
I have been trading with Accendo Markets and James Abbott my account manager for coming on 5 years now, James Abbott the senior trader of Accendo Markets provides me with up to minute information when I need it and find him very easy and professional to deal with. Whenever I need to trade or am not sure about anything James is always their to help with any queries I may have. The Accendo Platform I find very easy to use and navigate although it has been slightly changed over the years but definitely for the better. Personal when I do trade 90% of the time, I rather telephone call to place my trade dealings and if James is not there to take my call I find others at Accendo like Sam, Lee take my trades and are. All in all everyone at Accendo Markets are amazing to deal with and my relationship with Accendo is just as I like it. Peter Petrou
"Our Trader, Aymen Azizi, has been nothing but attentive to our every need throughout our long relationship with him. No issue is too small, full explanations on all our questions."
I have been with Accendo for a long time now, ten or twelve year's, probably more . As I told Sam (my trader) I thought that CFDs were better than sex . I stopped trading for a few years and only started back about a couple of months ago. But it is as if I had never been gone , so to speak. Sam has helped me every step of the way, at my age one forgets things. I have only praise for Accendo and as far as I am concerned the platform is the best . Now I am back trading at 71 years of age, I might even try sex again. Brian Robertson.
I understand how to make a profit with CFDs. I am restricted by the range of companies I have knowledge of. Although, I am not sure that is a big problem. Tom Robertson is a very fine man.
Well, I would not be trading without the help of my trader, Sam Alnakkash. He provided a really great overview of Accendo Markets, an insight into trading in general and how to get started in trading online. His advice, support and training has been fantastic all along the way, enabling me to start trading earlier than I would have done had I not had the support. He has also been very adept at understanding me as a client in order to help me achieve my trading goals. I still have a lot to learn and hope I will get there.
I like the updates on shares I trade. Updates from Bloomberg and Reuters plus industry updates and breaking news. I've had Matt Grice and James Abbott and found both to be excellent. I would like to continue a personal service with James. He understands how and which stocks I trade.
Excellent, knowledgable broker interaction and communication, coupled with very good research and analysis.
Being new to direct trading I needed help and was given all the time and advice that I needed to feel fully able to make decisions on what I wanted to invest in. I asked for and got exactly the type of info I required provided by Tom Cook, who I would recommend to anyone looking for help.
I have been dealing with accendo for the past 8 years my broker Amrit I find him very helpful when he is there lol and had many offers to change but will not do it Bill Roberts
Very good all round service! Timely market information. (charts + trends coverage ) On the ball accounts managers ,quickly available and alert . Part of my success owed to my personal manager Mr Sam Springet , than you.
Easy to deal with.....
Accendo markets are great for trading cfds and their research is second to none! Aymen manages my account is extremely helpful and always keeps me updated on market info. Thanks again
Always available, whenever I call I get straight through to someone that can and will help. The staff are very knowledgeable, helpful and easy to talk to.
Aymen Azizi keeps an eye on what is happening in the market and informs me with timely relevancy, email call, and txt.