In simple terms a CFD (contract for difference) is a financial derivative allowing traders to speculate on financial markets going long (moving up) or going short (moving down). Originating in London in the 1990s, CFD trading was first used by hedge funds and institutional traders as a cost-effective way to hedge their exposure to stocks on the London Stock Exchange. CFD trading was found to be a cost-effective way of trading because it avoided the UK stamp duty, as no shares actually changed hands and because only a small margin was required.
When in the late 1990s a number of innovative UK companies started offering electronic trading platforms, CFD trading became available to retail traders. Traders soon found that the real benefit of CFD trading was the opportunity to trade on leverage on any underlying instrument, and this lead to a growth in the use of CFD trading. In response to this, CFD providers began to offer the product not just for London Stock Exchange shares but also to include many global stocks, commodities, bonds, currencies and indices.
CFD trading begins when the trader makes an opening trade on a chosen instrument with the CFD provider, creating a position in that instrument. There is no expiry date on the position, so the position is not closed until a second reverse trade is performed. At the point of the reverse trade, when the position is closed, the difference between the opening and closing trade is paid as a profit or a loss.
Although there is no expiry built in to the position, any positions left open overnight are rolled over. At the point of the roll over any profit or loss is realised and credited or debited to the account, the position is then carried forward to the next day. When a trader is CFD trading, the profit and loss and margin requirement is constantly calculated and shown on the trader’s screen. If the trader’s account drops below the minimum margin level, the trader may need to make an urgent deposit to cover the margin in order to prevent the position being liquidated.
Because CFDs are traded on margin they provide the CFD trader with leverage, meaning that a small deposit is used as a lever to access an equivalent larger amount of assets. Not only does this provide an advantage to the trader but also increases the risk involved. However, this increased risk is also what drives CFD trading. Low margin requirements on CFDs means that only a small amount of capital is required to take a relatively large position.
CFDs provide investors with an invaluable instrument for trading financial markets. CFDs allow investors to trade without actually owning the underlying asset that the CFD is based on. Being a leveraged product, CFDs allow traders to take a large position with a small investment. You can make money from CFD trading whether the market moves up or down and you can use our CFD platform trial before deciding if you want to trade CFDs with Accendo Markets. Traders will find the many benefits to CFD trading include:
- LESS OUTLAY –
CFD Traders commit fewer funds by trading on leverage.
- NO STAMP DUTY –
Under current UK legislation, CFD trading is not subject to stamp duty*.
- NO POSITION EXPIRY –
The position, once opened, is only closed when the trader chooses to close it by performing a reverse trade.
- DIRECT MARKET ACCESS –
CFD traders can take advantage of the Direct Market Access facility
- FLEXIBILITY –
CFD trading offers more flexibility than traditional derivative trading like futures and options
- LEVEL 2 TRADING DATA –
Level 2 data allows traders to view market depth and pricing data from a variety of exchanges. This gives them the ability to gauge market liquidity and sentiment, thus improving trading decisions.
CFD Trading with Accendo Markets
Holders of the Best CFD Provider Award, Accendo Markets is a derivatives brokerage based in the heart of the City of London.
Our user friendly trading platform is designed to cater for the needs of both beginners and professionals. The award winning trading platform offers traders a host of features including:
- live pricing
- trading tools and charts
- live news feeds
- current open positions.
And also for more advanced users:
- live level 2 data
- state of the art charting software
- tools for the technical analyst
We provide a free CFD platform trial. When you sign up for the free CFD platform trial it will give you an allowance of £10,000 of virtual money to trade the financial markets, meaning that clients can perfect their trading strategy before committing funds. When the trial ends, you owe us nothing. However, we are confident that once you have experienced our trading platform you will make Accendo Markets your CFD trading provider of choice.
As an active trader with Accendo Markets, you will receive all of the benefits already mentioned. You will have the advantage of daily reports direct to your in-box. Our professional analysts will keep you updated on the latest research and trading opportunities, and you will be assigned a designated professional trader. Your designated trader is there to answer your questions on the telephone or by e-mail. He will also act as your account manager and trading tutor if required.
You can of course just trade online if you are a confident and experienced trader, but it is good to know that the support is there if you need it. We look forward to welcoming you as a CFD trading client of award winning Accendo Markets.
*Tax laws subject to change. Please consult an independent tax advisor if necessary.