CFDs
Contracts For Difference
A Contract for Difference is a contract between you and your CFD provider to settle the difference in cash between the price you buy the CFD and the price at which you sell. The price of a share CFD mirrors the underlying share price. Instead of buying the actual share, the CFD holder gets access to the performance or price movements. CFDs are also available on indices. With CFDs you can short sell shares, meaning you can make money in both a rising AND falling market.
No CFDs for the USA
CFDs are a relatively new phenomenon becoming very popular in many countries for their ease of use and leverage power. Although their use dates back to the 1980’s, when they were used by institutions, it wasn’t until the late 90s that they became available to private clients. CFDs first became popular in the UK and have grown rapidly in countries where the local options market is illiquid, such as the UK, Australia, Japan and Europe. While it is illegal for US residents to trade CFDs, it is possible for non-US residents to trade CFDs on US stocks and indices. CFDs are used for both short term frequent traders and long term investors, with a major advantage being that CFDs never expire. Traders can hold CFD positions indefinitely.
Leverage
CFDs are traded on margin from 1% to 20% depending upon index, share and provider. This means that you only need a fraction of the margin required of buying shares outright. Leverage means returns are magnified and this applies equally to gains and losses.
CFD Providers
