With CFD trading, you can trade on the price of a product going down as well as going up, so you can try and benefit from selling opportunities (shorting) as well as buying opportunities. Many investors use CFDs as a way of hedging their existing portfolios through periods of short-term volatility.
One of the key advantages of CFD trading is that you can trade using margin, which gives you 'leverage'. This means you can trade without having to put down the full value of a position and as your money is not tied up in one transaction, you can use it for other investments.
For example, to buy the equivalent of 10,000 telecom company share CFDs with CMC Markets, you may only need to deposit 5% of the total position value that you might have to pay if you were buying physical shares from a stock broker.
If each share cost $150c then you would only need to deposit $750 of position margin with us (5% of $15,000 = $750) plus the applicable commission.
To complete the equivalent trade with a stockbroker you would have to pay the full value of $15,000, plus commission and taxes.
Trading using margin means you can magnify the returns on your investment but it is also important to remember that losses will also be magnified so it is possible to lose more than your initial deposit. There are many tools on our platform that can help you to manage your risk effectively.