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Only for experienced investors - CFDs offer a Single trading platform for multiple instruments

June 11th, 2008 · 9 Comments

Understanding CFDs - Contracts for Difference

A CFD (Contract for Difference) is an agreement between two parties to settle the difference between the opening and closing prices of the contract, multiplied by the number of underlying units (shares, currency, commodity, index points) as specified in the contract.

CFDs, when used for trading shares, are traded in a similar way to Online stock trading. The prices quoted by many CFD providers is the same as the underlying market price and you can trade in any quantity just as you would with an ordinary share, you will be charged a commission on the trade and the total value of the transaction is simply the number of CFDs bought or sold multiplied by the market price.

However, there are some distinct differences from trading ordinary shares that have made them
increasingly popular as an alternative instrument to speculate on the movements of shares or indices.

CFDs - the advantage:

Contracts For Difference (CFDs) maximise your trading capital as CFDs are traded on margin as your investment.
CFDs contracts Stamp duty is not payable - it saves 0.5% compared to a traditional share purchase just like other trades - You can profit (or lose) from falling or rising markets by trading long or short A single account gives you access to greater reach of financial market instruments Limit & Manage your risk using a ‘Stop Losses and Limit orders

Risks of Contracts For Difference (CFDs)

The increased trading capital exposes to bigger profits and losses that may be magnified. CFDs are good for experienced investors trading in multiple instruments for risk minimising & maximising profits. If you are new to CFDs and need to update yourself on CFDs, look at all the sections at support pages on cfd for beginners on onecfd.com.

CFDs are less suited to the long term investor, if you hold a CFD open over a long period of time the costs associated increase and it may be more beneficial to have bought the underlying asset or positions.

CFDs do not entitle you investor rights, and no voting rights.

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Tags: Business · Finance · Forex · Investments · Stocks

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