This is one of the most commonly asked questions among traders, given that both CFDs and Futures Contracts are derivative products. Simply put, a derivative product is one that is based on an underlying financial asset. These include many different asset categories such as commodities (gold, silver, crude oil, wheat, copper), bonds, equities (shares), currencies, interest rates and so forth. CFDs trading offers you the advantages of no stamp duty in the UK, high levels of leverage, 24/7 dealing, and an effective way to offset your losses.

Now, it should be remembered that risk is an inherent element in both CFD trading and Futures. The reason that these financial instruments are so risky is that leverage is involved. Simply put, you are only using a fraction of your own money to take out a much larger trading position. If the trades go your way, you end up with significant profits, but the reverse is also possible. Fortunately, it is possible to exit positions that are performing poorly, regardless of your method of trading. In order to choose between these two, it is perhaps better to look at their differences. These include liquidity, financing and expiry dates.

A Futures Contract can best be described as an agreement to buy/sell an asset at a fixed price at a fixed date in the future. Price changes in the interim are irrelevant. With a Futures Contract, the expiry date is strictly enforced, because this is when the financial asset must be delivered at the agreed-upon price. That’s the theoretical explanation, but in practical terms the vast majority of Futures Contracts are exercised before their expiry dates. Instead, traders generate profits by buying/selling contracts to profit from market fluctuations. One way of doing this is by taking an opposite position to the one they have, thereby capitalising when the market turns against them.

A CFD is different to a Futures Contract. It has no fixed future date and it has no fixed future price. Traders simply agree to exchange the difference in price between the opening/closing price of a CFD contract. You should always look at things like bid offer spreads when determining whether to select a CFD or Futures Contract. Typically, Futures Contracts have narrower spreads. If you’re looking to trade in large quantities, you will want your spreads to be as small as possible, but on small trades CFDs offer many unique benefits too. Don’t be fooled by spreads alone – Futures Contracts require you to trade in large contracts. This means that your initial outlay will be much greater than you would otherwise have to place with a CFD trade.

CFD vs Futures by the Numbers

Consider for a moment that you were faced with the option of trading a CFD or a Futures Contract with gold. If you are to trade a CFD gold contract (5 ounces of gold), that would be worth 5 x $1123.40 = $5,617. However if you were to trade a Futures Contract , you may need to trade 100 ounces of gold which is the equivalent of $112,340 at prevailing gold prices. Thus it is clear that you have far more flexibility with CFD trading, and these trades can be made across multiple asset categories such as commodities, shares (equities), indices, currency pairs and the like. Opening a CFD trading account is much easier than opening a Futures account. One of the reasons for this is regulatory requirements. Since it is so easy for you to register at a reputable CFD broker, the only requirements are that you meet the minimum age requirement and that your identity is verified. It should be noted with CFDs that interest is payable on daily account balances. With Futures, the interest payment is actually included in the price of the asset.

TOP CFD Providers Comparison

When it comes to trading financial instruments, a great deal of uncertainty exists about the merits of CFD Trading vs that of Forex trading. Since each of these options provides a great deal of opportunity to traders, it must be clarified which unique benefits are available for CFD traders and Forex traders alike. From the outset, it should be pointed out that the functionality of both trading options is similar. But it’s the differences between them that need to be understood in order to ascertain which is best for your personal needs. The difference in price when a trade is entered and then exited is known as the Contract for Difference.

The trade execution process between both options is similar. Whether markets are rising or falling, the process of entering trades or exiting trades is easily done. The pricing mechanisms and the charts used to trade CFDs and Forex are similar. Everything takes place in the OTC market in an electronic banking platform. There is no need for a central exchange with CFDs or Forex. The spread is the only cost to traders – this is in sharp contrast to other financial instruments where finance fees and commissions are charged on trading instruments.

As one might expect, when you trade Forex or CFDs, you never take physical possession of the asset in question. You are speculating on the future price movement of the asset. If we take the case of the USD/CAD currency pair for example, the trader is not buying USD, the trader is simply speculating on the future exchange rate of the USD. Will it rise or will it fall against the CAD? By contrast, if a trader is interested in the NASDAQ 100 index in a CFD trade, the trader is really forecasting the price of the index. There is absolutely no ownership of stocks or funds in the NASDAQ 100. If the price moves in the direction anticipated by the trader, the trader will profit.

How do these Options Differ from One Another?

Contracts for Difference (CFDs) cover a wide range of markets whereas Forex covers just forex. This is the most important difference between the two. With CFDs you get to trade across multiple asset categories, including: metals, energy, indices, currency pairs and beyond. CFDs allow you to trade currencies in different increments and there are many unique currencies you can speculate on. With Forex trading, the manner in which you trade is standardized in lots and it is always one currency pair against another. CFD trading is heavily influenced by market forces of supply and demand of specific trends and commodities. When it comes to Forex markets, the major drivers of currency exchange rates are geopolitical events, and important economic announcements (unemployment rates, interest rate hikes, nonfarm payrolls, GDP, etc.).

Depending on the actual platform you choose, various benefits may be available including the following:

• Broader markets with CFDs
• CFD platforms allow for guaranteed stop losses
• The availability of demo accounts should be considered in both cases
• Margin and leverage will vary between CFD platforms and Forex platforms
• Forex has a widened spread while CFDs only provide for non-equity markets
• CFD equity trades incur commissions while other CFD trades are commission free

TOP CFD Providers Comparison

As a new trader, you’re presented with a myriad trading possibilities. Two of the most popular options are CFDs trading and spread betting. Both these options allow you to take a position on a tradable asset, without actually taking physical ownership of that asset. In other words you are speculating on the future price movement of the asset. You can go long or you can go short, meaning you can take out a bullish position or a bearish position.
 
It should be pointed out from the outset that neither CFD trading or spread betting involves any stamp duty – that is something that you pay on traditional stock trading. Both of these options involve a high degree of leverage. Leverage is what allows you to take out a much bigger trading position than the cash available in your account. For example if you have a 10 to 1 leverage ratio, you can take a position worth $10,000 if you have $1,000 in your account.

So what are the Differences between CFD Trading and Spread Betting?

Believe it or not – there are many differences and here they are:
• The Deal Sizes with spread betting are priced per point while with CFDs contracts reflect an amount per point
• Spread betting profits do not incur Capital Gains Tax, but CFDs incur capital gains tax. However profits can be offset against losses to reduce the tax burden, making these ideal for hedging purposes
• Spread bets run on fixed time frames with Set Expiries, while CFDs do not have expiry dates
• CFDs can also be traded via Direct Market Access, but spread bets cannot be traded that way
• CFDs incur additional Commission while Spread betting includes the charges in the spread
If you’re wondering which investment alternative is best for you, consider what your objectives are when trading. If you’re the type of person who wants to trade equities in small quantities, and you want a great degree of control over the deal size with tax-free benefits, spread betting is your preferred alternative.

Contracts for Difference provide an entirely different set of benefits to traders. Many traders are looking for direct market access to the bustling world of equities trading and currency trading with a great degree of similarity to the world’s major bourses. Plus, there are many hedging benefits that you can enjoy with CFDs.

Are Spread Bets Better than CFDs or Vice Versa?

It should be pointed out from the get go that a higher number of traders consistently claim gains with CFD trading than a comparative number of traders with spread bets. In both instances, a relatively small deposit allows you to take out a position much larger than your bankroll. And when you lose money on CFD trading, you can claim tax relief on those losses but you cannot with spread betting. This is an important distinction, especially given that stats reflect that winning trades on spread bets are much lower than winning trades on CFD trading. The general consensus in the investment world is that while spread bets generally tend to be preferred by a younger crowd since they offer a tax advantages, everyone who has been trading for a while ultimately gravitates toward CFD trading as a long-term investment option. At the end of the day it’s all about the charging structure that you feel most comfortable with. There are pros and cons to each investment option, but overall CFDs tend to get the nod ahead of spread bets.

TOP CFD Providers Comparison

If you are familiar with the other form of derivative investment – spread betting, then you will find many similarities between the two.  Each allow margin trading, stamp duty exemption and the ability to go ‘long’ and ‘short’ (we will discuss each of these in more detail later).  CFD trading however does not allow traders to forego paying Capital Gains Tax as spread betting does.

For many years, institutional investors traded CFDs rather than using more traditional investment methods due to the many benefits associated with them.  As the general public has become more aware of these benefits, it has become increasingly popular and is a leading form of investment for retail investors in countries such as the UK, Australia and Germany.

What are the advantages of CFD Trading?

Originally introduced in the 1990s as a more cost effective alternative to equity swaps.  Not only did they allow trading on margin but they also allowed traders to avoid paying stamp duty on their positions.  Traders were therefore better, and more cheaply able to hedge against other investments by ‘short selling’.

The main advantages of CFD trading include:

Leverage

By being able to trade on ‘margin’, it is possible to open a contract with a value far in excess of the funds you have in your account.

If you wanted to buy £100,000 worth of shares in a company, your stock broker would require you to pay the full £100,000 up front.

CFD companies differ as they will allow you to open a contract worth £100,000 but only require you to put down a small percentage of the contract value.  This margin will vary from one company to another and also depending upon the market you are trading in.  In some cases you might only be required to trade with 1% of the contract’s value.  In the context of a £100,000 share purchase, this  means you would only need £1000 in your account to hold a contract worth the same as the more traditional investment alternative.

Short Selling

By their nature, traditional forms of investment such as share or asset purchases only allow you to speculate on their price increasing in value and do not provide you the luxury of being able to ‘bet’ on the price declining.

CFDs, however, put traders in a position where they can speculate on asset prices going either way.  If you think a piece of data is going to be released that will adversely affect a share price then you can open a “sell” contract which means if the share price goes down, you will stand to make a profit.

The ability to speculate on falling prices also allows you to hedge against other positions you hold.  If you are worried that you are over exposed to a particular financial asset, say gold for example, you could go short using a CFD and protect yourself against excessive losses.

Stamp Duty Exemption

In the UK, if you purchase shares through a stock broker, HMRC requires you to pay stamp duty at a flat rate of 0.5%.  Contract For Difference trading is a way of getting around paying this tax which can lead to large savings if you invest substantial amounts or trade frequently.

Summary

It can be seen that CFD trading is a useful weapon for any investor to have in their armoury due to the many benefits it allows.  It must be mentioned though that due to it being a leveraged product, the trading of Contracts For Difference is also very high risk.  Traders can find themselves very rich in a short space of time but can lose equally substantial sums of money just as quickly.  To protect yourself from sudden price movements, make sure you open a stop loss on any contracts you open.  This stop loss will close out a contract if and when the price of an asset you have an interest in reaches a predetermined point.

TOP CFD Providers Comparison

CFD Trading is a popular, fun and often rewarding way of gaining exposure to price movements in the financial markets.  It works in a similar way to when you buy shares in a company although it is much more flexible and has many advantages over its more traditional counterpart.

A CFD or Contract For Difference is an agreement between two parties (the CFD provider and the trader/investor).  It stipulates that the buyer of the contract will pay the seller the difference between the current asset value and its value at contract time.  If this difference ends up being negative, it will be the seller that is required to pay the buyer.

There are three main reasons why so many informed investors use CFD services rather than share dealing or other methods of purchasing assets.  We will discuss these now.

Leverage is the ability to trade on margin which means a contract can be opened with only a small amount of its value being required upfront.  This allows you to open contracts that are worth much more than the funds you have available in your account.

Example:  If the margin requirement required by your provider was 10% and you wanted to open a contract worth £500,000, you would only need £50,000 to do so.  This is quite an extreme example with a contract’s minimum value being much less than this.  Leverage is an excellent tool to have in your investment arsenal as it allows you open considerably larger contracts and potentially benefit from far larger sums of money.

Short or Long

When you trade a CFD you decide whether you think an assets’ value is going to rise (in which case you would go ‘long’) or fall (where you would go ‘short).  This differs to when you buy an asset in the form of a share purchase, etc as your only option is to hope its price will rise.  The ability to short a financial asset is another very handy tool to have access to and it can bring huge profits during times of market volatility.

Stamp Duty Exemption (UK)

Investors that are based in the UK are able to save on tax by using Contract For Difference services as opposed to financial asset purchases.  They are able to forego paying stamp duty which is currently set at 0.5% of the purchase value.  The reason why a CFD is not subject to stamp duty payment is because when a contract is opened neither party is buying or selling the asset, they are simply taking out a position on its future value.

Where can you trade CFDs?

CFD trading is not permitted everywhere. The following are a list of countries it’s accepted and legal:

Norway, France, Ireland, Switzerland, Italy, Singapore, The Netherlands, Poland, Portugal, Germany, United Kingdom, Hong Kong, New Zealand, Sweden, Japan and Spain

Where does CFD Trading come from?

It began in the early 1990s in the City of London by Brian Keelan and Jon Wood.  It was based on the concept of equity swaps but had the added benefit of stamp duty savings (discussed previously).  Institutional traders in the City took on board the concept and used it to hedge against positions they held within their portfolios.  CFD trading was later introduced to retail investors by a company called GNI.

Thanks for reading this guide: “what is CFD Trading?”  If you have any questions or require further information, please get in touch through the comments section.

TOP CFD Providers Comparison

The following factors should be compared when deciding upon a CFD company:

Buy-Sell Spreads

The spread that a CFD company will charge is one of the key ways they make money and is the difference between the buy and sell price. Spreads can vary depending upon the company in question and in some cases these variations can be pretty wide. Also bear in mind that different markets tend to have different spreads and again these will vary from provider to provider. If you plan on trading regularly then it is of great importance that you compare the market before signing up.

Leverage

Leverage allows you to open contracts with a company that are worth far in excess of your account balance. Another word that is used to explain this is margin and different companies have different margin requirements for different markets. One company might ask you to put 30% of the value of the contract up front while another might only demand 5%. If leverage is something of importance to you then make sure you visit each of the main company’s websites and research what they offer on you preferred markets. We also have a CFDs companies comparison chart on this site that you might want to take a look at.

Leverage is a great way to make vast sums of money in the blink of an eye but you must also take precautions as you can also lose your funds rapidly. Make sure you set up a stop loss with any contracts you open otherwise you might find yourself losing your home, car and other important possessions.

Training Packages

If you are new to the world of trading then it is very likely that you are going to want to learn a thing or two about how it all works. Most companies offer a form of training although some are much better than others. Some companies such as Spreadco don’t offer any training for their clients at all, while ETX offer a free training course provided by a third party company worth over £500. We would recommend you sign up with ETX just to take advantage of this training even if you decide not to trade with them.

TOP CFD Providers Comparison

Speculating on Asset Price Movements with CFDs

First off, it is important to know that with CFDs you never take possession or ownership of a financial instrument. You’re simply speculating on the future price of the instrument or asset. You can go long or short, and if the market moves in your direction you’re in the money. Two types of positions can be opened with CFD trading: going long (opening a buy position) and going short (opening a sell position). These positions are opened by bullish and bearish traders respectively. Unlike binary options trading where only the direction of price movement matters, with CFD trading it’s the size of price movements that determines your profit or loss.

The good news with CFD trading is that you can generate profits whichever way the market moves, provided you speculated in that direction. In other words, bullish and bearish markets can work for you because CFDs are derivative products. If you believe that a particular stock is going to rise in value, you would purchase a CFD to trade that stock. The further the market rises, the greater your profits. But the converse is also true with CFDs – when markets move in the opposite direction to your chosen trade, your losses accelerate. The range of assets that you can trade includes commodities, shares, indices and Forex. A good tip for traders is to stick with an asset that you understand best, since you’re more likely to correctly anticipate price movements.

Tips for Understanding Buying & Selling Prices

Underlying markets typically quote two-way prices. These include the first price which is known as the bid price and the second price which is known as the offer price. The spread is the difference between the prices. If you are of the opinion that the underlying market price will rise, you would buy at the higher price. If you believe that the market price will fall, you will then sell the lower price. You can typically purchase as many contracts or shares as you like, provided the minimum permissible size has been met for any individual market. A FTSE 250 contract may be worth £20 per point in the index. If you’re bullish on the FTSE 250 contract and the index rises by 1 point, you will generate £20 of profit. If the index falls by 2 points, you will incur £40 of losses.

CFDs and Expiry Times

Many traders are a little unsure of CFD trades and expiry times. It should be pointed out that CFD trades typically don’t expire. You can close off a trade by placing an equal value trade in the opposite direction. If you notice that the price of a share that you’re trading of a CFD is falling, you may wish to close out before your losses become untenable. Naturally, there are exceptions such as forward contracts on different types of commodities. These will typically have expiry dates on specific dates. But you don’t have to wait until that date to be released from this contract – simply trade out prior to expiry time.

Guru Tips for CFD Traders

• Use leverage very carefully when you’re trading CFDs – profits can be massive, but so can losses. Guru traders advise a maximum of x3 leverage on your account size.
• Maintain an edge when you’re trading financial instruments in CFDs.
• Minimise your losses and maximise your profits – every pound is precious.
• Use a sensible, logical trading strategy at all times.
• Be sure to use stop losses to preserve your capital.
• Make use of a trading journal to record things like trading times, what assets were traded, why you traded, and charts.

TOP CFD Providers Comparison

Money Management Example

First, we look at a protective money management trade as it relates to calculating position size:

• Using an account size of $100,000, the CFD trader follows money management rules and risks no more than 2 percent in the position.
• 2 percent risk exposure is equal to $2,000 per trade and technical analysis parameters account for a stop loss equal to 40 cents.
• Total position size is calculated: $2000 divided by 40 cents equates to 5,000 CFDs

Trailing Stops Example

In the next CFD trading example, we will look at how trailing stops are used once positions have already been established:

• The CFD trader buys Google at 395.00 with aim of taking profits on the approach of $450.00. Once the position is in positive territory, we adjust the stop loss to “trail” gains and move higher along with prices.
• Trailing stops, in this case can be based on $5.00 increments, starting from $10.00 below the initial entry. If prices move favorable, the stop loss will be raised every time prices move $5.00 higher. If the prices fall, however, the stop loss remains static and will be triggered at a loss of $10.00.

Pairs Trading

Next we look at Pairs trading strategies, which have the added benefit of reducing exposure to markets trending in one direction. When using a Pairs trading CFD strategy, traders make a forecast on the relative performance of two CFDs, rather than on the direction of the market as a whole. This adds some complexity to traditional “buy and sell” strategies and helps to reduce some of the possible risk exposure.

Example 1:
IBM/Microsoft: IBM has underperformed Microsoft this year by 8 percent, on better earnings reports and product sales and you forecast that this trend will continue. Strategies in the equity markets often rely on an analysis of price to earnings ratios and assuming that Microsoft is undervalued at current levels, we enter into a buy position in Microsoft and a short position in IBM. The same position size in used in each trade, as we are basic the position on relative performance.

Microsoft: Currently trades at $32.10. We divide 10,000/32.10 to calculate the number of shares (311 shares).

IBM: Currently trading at $210.45. We divide 10,000/210.45 to calculate the number of shares (47 shares).

Assume the initial forecast is accurate and Microsoft improves to $36, while IBM rises to only $214 during the same period. To calculate profits, we subtract the difference in the value of each CFD:

Microsoft: 311 * 36 = 11,196
IBM: 47 * 214 = 10,058
Total Profits: $1138

Example 2:
Gold and Crude Oil: Using a technical chart perspective, we have a bullish view of gold given that is has recently broken above a significant resistance level. But the same price momentum is not seen in Oil prices and this trend is expected to continue. We find two companies with commodity exposure: Highland Gold Mining (HGM) and Exxon (XOM). These will be our proxies for going long Gold and short Oil in our pairs trade.

Using a position size of $10,000 and a 5% margin, we invest $500 in each trade:

HGM -10,000/price of $139.50 = 71 Shares (buy)
XOM – 10,000/$86.20 = 116 Shares (sell)

Assuming the initial forecast is correct, HGM rallies to $146, while XOM is seen dropping to $84. Here, both trades are profitable, and we can calculate the figures:

HGM: 71 * 146 = 10,366
XOM: 116 * 84 = 9,744

Subtracting the difference from the initial investment, total profits = 254 + 366 = $622

TOP CFD Providers Comparison

Trend Trading

One of the first maxims new traders hear is that the “trend is your friend.” The essential argument is that most asset classes tend to trade with an underlying momentum that can be identified by looking at price activity as well as technical chart indicators such as the ADX or MACD. Up-trends are generally defined as being comprised of a series of higher highs combined with a series of higher lows. In contrast, downtrends are seen when lower highs are combined with lower lows in price activity. Many CFDs tutorials often advise new traders to look for trends and establish trade ideas based on the underlying momentum, as this is an easy way to turn the forecasting probabilities into your favor.

Range Trading

Range trading conditions occur when prices are confined by upper and lower limits, which prohibit an asset from establishing a clear trend in either direction. Ranges are defined by support and resistance levels, which are areas where prices have historically met selling pressure (resistance) or met active buyers (support), pushing prices higher. Buying positions are generally established when prices obey support levels and sell positions are favored when prices fail at previously established resistance. Additionally, profit targets are very clear with range trading methods, as many traders will look to close long trades when prices approach resistance and to close sell trades when prices approach support.

Contrarian Trading

Contrarian is probably the most difficult CFD trading strategies, as it requires a great deal more practice in identifying critical reversal points on your charts. One common characteristic of a successful reversal entry occurs when prices have extended too far in one direction without any corrective retracements. Chart indicators such as the Relative Strength Index (RSI) can be used to clearly see when prices have become “overbought” or “oversold” and these areas can be used to establish new contrarian positions.

Conclusion

The trading strategies outlined in this article comprise the basis from which most other CFD trading styles are generated. These strategies achieve higher levels of probability when combined with other method, such as a fundamental analysis of the macro economic factors affecting prices or the use of technical indicators to remove some of the subjectivity from your chart analysis.

TOP CFD Providers Comparison

CFDs are investment instruments geared toward traders with some level of trading experience. It have some similarities and differences with respect to traditional shares investing but there are some clear advantages that should be considered by any trader looking for additional portfolio diversification. The CFD itself is a contract between two entities – the individual investor and the broker, outlining an agreement to settle the contract based on the difference between the opening and closing price. Dealing it will allow investors indirectly gain access to the price movements seen in the stocks, commodities, or currencies markets without actually taking possession of the physical asset. As a CFDs trader, you are looking to capitalize only on the price activity of the underlying asset, so gains can be made in both rising and falling markets.

What is Leverage?

One of the often-cited advantages of CFD trading is that it allows investors to “leverage” their positions, which essentially means that you have the opportunity to establish a position with an initial deposit, which is sometimes as small as 10 percent of the total CFD position. This gives traders the opportunity to control a much larger position than would be possible in traditional shares trading. This, in other words, translates into the potential to achieve much larger gains, as traders are entitled to capitalize on the moves generated in the entire position (not simply limited to the size of the initial deposit). It should be remembered, however, that this potential for gains also translates to an increased potential for losses, so leveraged trading should be approached with a good deal of caution.

What are Listed and Unlisted CFDs?

The clearest difference when looking at listed and unlisted CFDs is that a listed one is traded on a common stock exchange, such as the S&P 500. This listing affords traders some added protection in that listed CFDs tend to operate in a more transparent manner and are subject to strict trading regulations. Another important factor is that listed will often provide a guaranteed stop loss on each position without any additional costs. This helps to ensure that traders will not be able to lose more than what was initially deposited into the margin account, even during times of heightened volatility in the markets. Because of this, it could be said that listed CFDs create the potential for unlimited upside gains, while potential losses are defined within strict parameters.

Are CFDs Different from Spread Trading?

When looking at CFDs and traditional Spread Trading, there are four major differences that can be seen:
First, gains made with CFD trades are subject to Capital Gains Tax. Losses can also be factored-in relative to Capital Gains liabilities. When dealing with Spread Trading, gains and losses will not be considered when accounting for Capital Gains requirements.

Second, CFDs offer more flexibility in terms of when positions are closed. With Spread Trading, positions are closed based on a predetermined closing date which cannot be altered without additional provisions. This is an advantage for CFDs as positions can be closed based on current market behavior that is more up-to-date.

Third, CFD trades are usually subject to commission charges, while this is not the case when Spread Trading. Commissions are often priced directly into the spreads seen in each trade.

Fourth, long positions in CFD trades allow the investor to capitalize on dividend payouts associated with the underlying asset. It should be remembered, however, that short positions might require traders to actually pay a proportion of this dividend, so this must be considered when looking to establish new CFD positions in long term CFD strategies. Spread Trading does not factor-in dividend yields when positions are established.

Are there limitations when Short Selling CFDs?

There are limitations in some stock markets, as some brokers will only allow traders to short European and British stocks that have a market cap of 200 million in local currency. In US markets, some restrictions apply for companies with a market cap of less than $1 billion. There are also instances where short selling is restricted during times of excessive market volatility.

Which financial instruments are commonly offered?

There is currently a wide variety of instruments that are offered by brokers. Some of the most common include Listed CFDs, Bonds corporate bonds as well as gilts), ETFs (Exchange Traded Funds), ETCs (Exchange Traded Commodities), PIBS (Permanent Interest Bearing shares), REITs (Real Estate Investment Trusts), Options, Futures, and Foreign Exchange (Forex).

What is LIBOR?

LIBOR is an acronym for the London Inter-Bank Offered Rate, which is the rate banks use to lend one another and is regulated by the British Bankers Association. Essentially, what this means for traders is that the LIBOR is the basis used to calculate overnight interest charges for CFD trades that are held longer than one day. Interest charges are different for long positions and short positions, so these fees should be considered when individual trading plans are structured.

What is a Stop Loss and is it always guaranteed?

A Stop Loss is a market order that allows you limit trading losses by setting a price that will automatically close your position if price activity works against the trade. The stop loss will execute a sell order (in long positions) or a buy order (in short positions), closing your position at a predetermined loss level. This level can be derived in tick values, percentage movements, or in Dollar values and this will prevent excessive losses from accruing later.
Not all stop losses, however, are guaranteed. This is why it is important to carefully read your broker’s trading agreement before any trades are made. Guaranteed stop losses typically require brokers to charge more in spread fees, but this is viewed by many as a clear advantage when markets become volatile.

What are the risks involved in CFD trading?

CFDs trades, like any investment, carry with them a significant risk level, and because of this new traders should not invest money in excess. Market prices in all asset classes can be subject to unexpected volatility and sharp reversals in trend direction. For this reason, CFD brokers will require you to sign the company’s risk notice before any trades can be placed.

What are the common dealing hours CFD brokers?

In some cases, the dealing hours are dependent on the operating hours of the underlying asset markets but many of the asset categories that are available will be offered for trade on a 24-hour basis during the week.

What documents will I submit when I open my CFD account?

CFD brokers will require that you provide an original form of identification, such as a current passport, driver’s license, formal tax receipt, or social security card. In addition to this, address verification will be performed using a recent utility bill, mortgage receipt, bank statement or credit card bill.

TOP CFD Providers Comparison