Is CFD Trading for Me?

If you're new to CFD trading this brief guide will help you decide if it's right for you.

CFDs (Contracts for Difference) are derivative products. They’re sophisticated financial instruments that let you speculate on the price of shares and commodities, or the value of an index or currency.

Naturally they’re riskier than keeping your money in a savings account. But with some market knowledge, and using the risk management features offered by Spread Co, you can use CFDs to access an extensive range of investment opportunities.
Find out more about Spread Co’s risk management features.



CFD trading

CFD trading is very much like spread betting, though there are some important tax differences: you may have a Capital Gains Tax liability on profits that you make, though this can be offset against some losses you incur elsewhere.*

The basic principles are the same. You can trade on equities, indices, currencies and commodities, and your outlay is only a fraction of the full value of the trade. But the amount at risk is the full value of the asset, so you should never place a trade where the potential loss is more than you can afford.


Hedging with CFDs

Hedging is quite simply an arrangement that lets you offset potential losses from your investments if they fall in value. Many share investors now use CFDs to hedge against potential losses on their share portfolios.

Let’s say you’ve bought 1,000 shares in HSBC at £5 each. If the share price rises, you make a profit when you sell, but you make a loss if the price drops. So you decide to sell 1000 HSBC CFDs. If the share price drops to £4.50 you’ll have lost money on the share transaction. But when you close your CFD trade this will offset most of your loss, after you take commission into account.


CFD trading or buying shares

CFD trading has a number of advantages over buying shares. These include:

  • No stamp duty* – on your CFD transaction
  • Go long or go short – with share investing you can only profit if the price of the share rises
  • Lower cost of entry – your initial outlay is only a fraction of the full value of the trade, but remember that your potential loss is far greater

CFD trading with other assets

CFD trading gives you access to thousands of different markets, not just shares. These include global indices, currencies, and commodities such as gold and crude oil.

If you’re an experienced trader you’ll already understand the advantages of trading on margin. Combining this benefit with the ease of using Spread Co’s powerful mobile, tablet and web trading platforms, creates a compelling case for switching to CFDs.


CFD trading with Spread Co

When you place your CFD trades with Spread Co you’ll also enjoy these advantages:

  • Low commissions on shares – from 0.05% and only the spread on other markets
  • No overnight financing - when you go short on indices or equities
  • Risk management features - like Stop Loss and Limit Orders, help you manage risk in fast moving markets

*Tax laws can change and depend on individual circumstances.
Tax laws may differ in a jurisdiction other than the UK.



New to CFD Trading?

If you’re new to CFD trading, why not try a Spread Co demo account. It lets you trade a selection of markets, and it’s absolutely free.

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Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.