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CFD Definition

  • The term CFD stands for ‘contract for difference’.
  • CFDs allow you take position on whether the value of a financial market - for example, a share, commodity, currency pair, or stock index - will rise or fall in short, medium or long term.
  • If you believe the price of a market is going to rise, you buy or ‘go long’ and you’ll profit from every increase in price.
  • If you believe the price of an asset is going to fall, you sell or ‘go short’ and you’ll profit from every fall in price. If prices move against you however, you’ll suffer a loss.
  • With CFDs, you don’t own the underlying asset - you’re simply speculating on the movement of its price. Therefore there’s no physical dealing costs like UK Stamp Duty
  • CFDs are a leveraged product, meaning you are only required to deposit a small initial deposit in order to gain a much larger market exposure

CFD trading example

Let’s say you believe the UK 100 index (underlying FTSE 100) is going to rise in price thanks to some positive UK corporate earnings, and you want to place a trade to take advantage of any move higher in prices. You log in to our award-winning xStation trading platform and see the latest UK 100 price is 6650.

The trade: So you decide to go long and buy 1 lot of the UK 100 at 6650. At a trade size of 1 lot, every pip the UK 100 rises above 6650 nets you a profit of £10.

The result: Sure enough, your view is proved correct and soon the UK 100 has rallied to trade at a new price of 6700, a rise of 50 pips and you decide to close the trade. This nets you a profit of £500 (50 pips x £10). Of course, if prices were to fall to 6600, this would have net you a loss of £500.

What markets can you trade CFDs on?

We offer contracts for difference on over 1500 global markets and multiple asset classes, all with the ability to utilise leverage and take advantage of falling prices as well as rising prices:

Leverage

The important thing to remember about leverage is that while it can magnify your profits, your losses are also magnified in the same way. So if prices move against you, your losses could exceed your initial deposit - so it’s important to understand how to manage your risk.

Learn more about CFDs and how to trade them.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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