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 tradingCFD 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.1
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 CFDsHedging 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 sharesCFD trading has a number of advantages over buying shares. These include:
CFD trading with other assetsCFD 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.