About CFDs

What is a CFD?

CFDs provide a way of entering the stock market without actually buying any shares.

Contracts for Difference (CFDs) have been traded by institutions in the market place for many years. During the last decade the product has been increasingly available for the individual investor.

• CFD is short for Contract for Difference. A Contract for Difference (or CFD) is a contract between two parties, typically described as “buyer” and “seller”, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. For example, if the value of a share is 500p at the opening of the
contract and 510p at the close of the contract, then the difference is 10p. If the investor has bought 5000 CFDs and predicts that the share price will rise, then their profit will be 5000 x 10p = £500.

• CFDs provide a way of entering the stock market without actually buying the underlying asset, for example without actually buying shares. Instead, the investor pays commission to enter the contract then pays interest on the remaining value of the underlying asset if held overnight. The interest continues until they decide to end the contract.

• Compared to traditional share buying, CFDs offer the possibility of a higher profit for a smaller investment. On the other hand, losses as well as profits can be magnified. However, CFDs allow you to cut your losses quickly (by ending the contract), or increase your profits (by allowing the contract to run).

Margin
‘Margin’ is one of the most important aspects of a CFD. Margin or leverage means you do not have to pay the full value of the shares. Instead, you deposit a deposit. For example, the ‘initial margin’ for a share would usually be 5% or above (Margins are subject to change). When trading currencies and indices using CFDs, the margin rates are as low as 1%. Margin trading allows you to magnify your position in the market. Compared to buying shares, spending the same amount of money on CFDs provides the opportunity to magnify your profit. Remember, however, that leverage can also magnify losses.

Long and Short Positions
CFDs can be used to predict decreases as well as increases in asset value. Buying a CFD based on the prediction that the asset value will increase is known as ‘going long’. Alternatively, buying a CFD on the prediction that the asset value will decrease is known as ‘going short’. Taking a short position gives you the opportunity to speculate on prices falling.

Dividends
Taking a ‘long position’ you benefit from dividends as if you were owning the actual shares. However, if you are in a ‘short position’, the reverse applies - you will pay out the dividend.

Tax Efficient
Unlike buying shares, CFDs are not liable to UK Stamp Duty under current tax legislation.

Buy and Sell Orders
You can control when to buy and when to sell CFDs by placing Buy and Sell Orders. A Buy Order directs the broker to buy CFDs when shares reach a certain price. There are two types of Sell Order. A stop - loss order triggers an immediate sale. The aim is to prevent further loss. A profit - target order triggers an immediate sale when profit reaches a
certain level. The aim here is to protect profit (which can go down).

Trade the Global Markets
JN Financial covers all the major global markets, including Equities (UK, US , Europe and Asia), Commodities (for example Oil and Gold), Indices (for example FTSE100, S & P 500 and Nikkei 225) and Foreign Exchange (for example Sterling/Dollar and Euro/Dollar).

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Risk Warning

Trading in Contracts for Difference may not be suitable for all investors due to the high risk nature of the product. You may lose all of your initial stake through the use of leverage and may be required to make additional payments by way of margin on a frequent and sometimes daily basis. Failure to do so can result in the closure of part or all of your position.

The value of an investment in a Contract for Difference may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. CFD's are a short term trading tool and commission is charged on the leveraged amount (not the deposit) and therefore costs can build up when frequently traded. You should evaluate potential losses against affordability. JN Financial are authorised to give advice on investments including CFDs, however extended runs of losses as well as profits can occur. Past performance is not necessarily a guide to future performance.

If in any doubt, please seek further independent advice. Tax laws may be subject to change.

JN Financial Limited is authorised and regulated by the Financial Services Authority No. 442252