Learn about some of the advantages of CFD trading. Contracts for difference (CFDs) are a type of derivative product that allow you to trade using leverage within the financial markets, including on indices, forex, commodities and shares. Discover the main benefits of CFD trading on our online platform, and learn about the associated risks of CFD trading also before placing a trade.
Unlike traditional share dealing, there is no stamp duty to pay on a CFD trade as you don't take physical ownership of the underlying asset. However, tax treatment depends on individual circumstances and can change. Read more about CFDs vs share trading here.
With contracts for difference, you can trade on the price of a product going down as well as up, so you can try and benefit from selling (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 on margin, which gives you 'leverage'. This means you can trade without having to put down the full value of a position. As your money is not tied up in one transaction, you can use it for other investments. Read more about trading with leverage.
For example, to buy the equivalent of 10,000 telecom company share CFDs with us, 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 150p, then you would only need to deposit £750 of position margin with us (5% of £15,000 = £750) plus the applicable commission, which in this instance would be £12.
To complete the equivalent trade with a stockbroker, you would have to pay the full value of £15,000, plus CFD commissions and taxes.
Note: trading using margin means you can magnify the returns on your investment but it is important to remember that losses will be magnified as well. There are many order types and execution tools on our platform that help you manage your risk effectively. Learn more about our software, which has been voted as best CFD trading platform* for several years.
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