Contracts for difference (CFDs) are one of the world's fastest-growing trading instruments. A contracts for difference creates, as its name suggests, a contract between two parties speculating on the movement of an asset price. The term 'CFD' which stands for 'contract for difference' consists of an agreement (contract) to exchange the difference in value of a particular currency, commodity share or index between the time at which a contract is opened and the time at which it is closed.

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What are CFDs?

CFDs are similar to spread betting in that you can bet on stock price movements without having to actually own the shares. The key difference is that spread betting is considered a form of gambling, so is free from capital gains tax and stamp duty, but CFDs are only free from stamp duty. But either can be closed out at any time.

What are the advantages of CFDs?

You don’t pay any stamp duty, unlike share purchases. And during the life of the CFD, you are entitled to any dividends paid or stock splits issued by the company whose shares you’re buying.

CFD Trading

CFDs are available on a huge range of different assets including global indices, stocks, sectors, currencies and commodities.

CFD Trading provide access to the movement in the share price by putting down a small amount of the total market exposure - this is referred to as a margin.

You can go long or short. If you go long, you are entitled to dividends and pay daily interest (financing), if short, the reverse is applicable.

 

CFDs do not have an expiry date like options or futures contracts. As opposed to an expiry date a CFD is effectively renewed at the close of each trading day and rolled forward if desired - you can keep your position open indefinitely, providing there is enough margin in your account to support the position. In this stance contracts for differences are very similar to futures without an expiration date. While the contract remains open, your account with the provider will be debited or credited to reflect interest and dividend adjustments.