About trading CFDs

When you trade CFDs you don’t physically own the underlying financial instrument meaning that you can take a position on the financial markets at a lower cost than is normal. A CFD stands for contracts for difference.

When you trade CFDs you trade on margin, that is, instead of paying the full value of the underlying financial instrument you pay a small initial deposit which can allow you leverage of up to 20 times your initial outlay. CFD trading is flexible enough to allow you to not only profit from rising markets (going long) but falling markets (going short) too.

How does CFD Trading work?

A CFD (contract for difference) is an agreement to exchange the difference in value of a share at the time it is opened and at the time at which it is closed. When you trade CFDs you ‘sell’ if you think the market will fall and ‘buy’ if you think it will fall. The amount of money you make, or lose, is determined by the amount of contracts you hold multiplied by the difference in price at which you opened and the price at which you closed.

Remember the initial deposit, or margin, you have to pay is relatively small; you will also have to pay a nominal rate of commission, typically around 0.10%. Unlike traditional share dealing you won’t pay any broker’s fees or stamp duty when trading CFDs.

Risk management

You can take advantage of various devices that will limit your exposure to risk.Use trailing stops to lock-in profit every time you trade, or pay a small controlled risk premium to guarantee an absolute limit on any potential losses.

Cutting-edge technology and trading platforms

Most CFD trades are placed online directly through the provider via a trading platform. It’s important you choose the right one to help you trade effectively and safely. One of the market leading trading platforms is IG Markets’ PureDeal . It works from your browser and allows for intuitive and precise trading, while also providing access to professional-level charts and a free news-feed from Reuters.

If you are an experienced CFD trader, it will be interesting to note that some CFD providers offer Direct Market Access, allowing you to send orders directly to a stock exchange.

Further information…

CFDs are a leveraged product and can result in losses that exceed your initial deposit. Trading CFDs may not be suitable for everyone, so please ensure that you fully understand the risks involved.