• Market Analysis Guide
  • Intro
  • Technical Analysis Guide
  • Bill William’s Chaos Theory
  • Japanese Candlesticks Theory
• Video Tutorials
  • Intro
  • Alpari Research: Technical Reports
  • What is Forex and How Does It Work?
  • Introduction to Charting
  • Introduction to Technical Analysis
  • Risks
  • Using Technical Indicators
  • Introduction to Fundamental Analysis
  • Gold and Silver
  • Money Management
  • Position Sizing
  • Understanding and Trading the News
  • Earning Interest in Forex
  • Introduction to Fibonacci Analysis
  • Economic Indicators
• Autochartist
  • Intro
  • Download Autochartist
  • Autochartist Tutorials
• Glossary

What are CFDs?

Contracts for Differences have hugely increased in popularity since first being adopted as a form of trading by private investors. This is because trading CFDs has many advantages over normal share/futures trading:

• Gearing. CFDs are a geared (leveraged) product, so you can trade on margin without having to tie up large amounts of capital.

• Low commissions and competitive margin requirements. You do not have to fully fund the value of your position. You instead, only provide a margin of 5-10% of the full contract value.

• Low costs. CFDs are exempt from Stamp Duty under UK laws because there is no physical ownership of the underlying shares. Furthermore, there are low commissions and no charges associated with trading on an exchange.

• Going short. Enables you to profit in both falling and rising markets with an equal ease.

• High-speed execution. Deals are executed immediately after you give instruction to trade.

• Hedging opportunities. If you are a shareholder, and prefer to hold your shares even if their prices fall, you can open a short position in CFDs for one share (or the whole portfolio). As a result, your losses on the underlying asset will be offset by the profit on the relevant CFD.

• Dividends. You may be entitled to receive the dividends with the CFD in much the same way as you would if you were trading shares. If you have a short position the dividends will be debited from your trading account. You will not however, be entitled to any voting rights if you hold share CFDs as opposed to holding shares.

• Short term trading. The ability to gear up your trading capital by trading on a margin combined with no stamp duty, makes CFDs an ideal instrument for short-term trading.

Read more:

• Share CFDs
• Going Long
• Going Short
• CFDs on ETFs

© 2004-2012 Alpari LTD