CFD Dealing

Contracts for difference – or CFD's for short - put simply: the key benefit of buying a share on a CFD is that you get all the benefits of owning the physical stock, for a fraction of the initial cost of the physical stock.

As you can trade stocks 'long' or 'short' you have different options and also the ability to make money in a rising or falling market. They can also provide a useful hedging tool for clients with large physical holdings. Especially if they feel the market may move against their physical holding in the short term but they don't wish to sell the stock. This reluctance to sell maybe due to a number of reasons including the realisation of a Capital gain, and other potential tax implications.

A further advantage of being able to profit from both forward and back movements in the market is the chance to trade 'pairs'. A basic example of this might be 'long' Oil 'short' an Airline. Another variation on this type of trade would be a potential response to natural event such as a flood or earthquake. In this case you may choose to go 'short' insurance companies and 'long' construction firms, as they may benefit from a rebuilding programme.

As a trader you need to be aware of the different types of providers of CFD's, some providers might be more like spread betting firms (in that you are dealing with that provider on their prices). With other providers your order is sent to the market. The first type of trade may be cheaper in terms of commission, however the spread may hold some of the charge. With the second example you are dealing at the actual market price. In this case the spread could potentially be different to the spread betting firm as their price will be based on their view. The majority of traders generally prefer to deal on the actual market price.

If you are considering trying CFD's as a trading method, ensure you take time to become familiar with the platform and functionality. Set yourself strict rules on the types of trades you plan to make and amount of money you plan to invest, and stick to your rules!