What is CFD trading and investing?

CFD, short for Contract For Difference, is a derivative financial instrument enabling you to gain exposure to financial markets without physical ownership of the underlying asset. It is an agreement between you – the trader and the provider – to exchange the difference in value between the opening and the closing level of a particular contract.

It has no expiry date, meaning that you decide when you want to close out your position, at which point the difference in value will be exchanged (i.e. profits paid to you, losses deducted from your account).

The term ‘derivative’ means that the price is derived and moves in line with the underlying asset. CFDs enable you profiting from the market movements with only a fraction of the total position value as deposit.

This is known as leveraged trading, whereby only a portion of the total value needs to be deposited in your account in order to open a trade. This means that you will be able to gain exposure in positions that have larger value than the initial deposit or that you can assume positions with smaller outlay. Furthermore, in our continuing efforts to empower you, we enable you to control the extent of leverage you want to use on every single trade.

CFD trading offers a flexible alternative to other means of trading as it allows exposure to a wide variety of markets, which you would not get in cash products. You can trade both in rising and in falling markets, depending on your point of view of the future price movements.

Since you do not trade the underlying asset, the costs usually associated with the physical ownership, such as account management fees, commissions or stamp duty, do not apply, lowering the trading costs accordingly. And this is what can make the CFD trading cost-effective.