This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
With Accendo Markets, you can use CFDs the same way you buy conventional shares. However, you free up capital and avoid stamp duty. Let’s take a look at the following example.
You like BP at 450p, worthy of a ten thousand pound investment. Using conventional shares, you part with ten thousand pounds to buy ten thousand pounds worth of BP shares. You could hold all the way down to zero and back up again.
Alternatively, you could enter the same trade using a CFD. When you buy £10,000 worth of BP, your capital outlay is just £2000 – a 20% deposit. Your exposure is exactly as it would have been with your shares, what you stand to make or lose is the same. The difference is your capital outlay, £2000 instead of £10,000.
You must support any running loss on your CFD trade. If the price drops 10% you need £1000 on account on top of your £2000 deposit. Another ten percent fall requires another £1000. If BP falls to zero, you part with ten thousand pounds – the same as the conventional share purchase.
The same responsibility comes with a conventional share position, only you’re forced to invest all the money at the point of purchase. But how necessary is this? Is BP really going to go bust? In any case, let’s hope that your BP trade returns a healthy profit.
Many traders use CFDs to free up capital and avoid stamp duty. Use CFDs wisely, manage your exposure – it’s a great tool.
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research