What is CFD trading and how does it work?
Published on: 02/11/2021 | Modified on: 20/03/2023
A contract for difference is a financial derivative product that pays the difference in settlement price between the opening and closing of a trade. CFDs are a tax efficient* (UK) way of speculating on the financial markets and are highly popular amongst FX and commodities traders. CFD trading enables you to speculate on the rising or falling prices of fast-moving global financial markets, such as forex, stocks and shares, indices, commodities, and treasuries.
KEY POINTS
- Speculate on both sides of the market by opening long or short positions
- Traders can buy or sell a number of units and for every point the price of the instrument moves, you will make a profit or loss
- CFDs are available globally and come with no stamp duty fees, although they are subject to capital gains tax*
- They are a leveraged trading product, giving you greater exposure to the financial markets
- CFDs can be used for hedging to offset losses from your existing portfolio