Contracts for Difference (CFDs) are an instrument for investors trading on the financial markets, magnifying the trader’s buying power. A CFD is a contract on an underlying asset (for example, a share price, commodity or currency) to pay or receive the difference between the opening price and the closing price of the underlying asset.
CFDs allow you to trade in the financial markets without actually owning the underlying asset on which the CFD is based.
You can speculate on whether the market (e.g. a share price) moves up or down. This is known as ‘going long’ (making money when the market rises) and ‘going short’ (making money when the market falls). Of course, if the market moves against you (e.g. it goes down when you went long) you’ll make a loss, much like conventional types of trading (e.g. share trading). However, CFDs allow you to trade on margin, meaning your profits and losses can be magnified. You can perfect your trading strategy with our CFD platform trial before committing funds.
In the UK, CFD trading is popular due to the pricing benefits it offers over spread betting and the flexibility it offers over traditional derivatives, like options and futures. Of course, it is also important that you understand the risks.
Unlike options and futures, CFDs have no contract expiry. You can hold the position for as long as you choose.
Under current UK tax law, no stamp duty is payable on CFD transactions.*
Risk management tools are available such as stop-losses, which can limit your risk.
*Under current UK tax law. Tax laws may be subject to change.