What is CFD Trading?
A CFD, or Contract for Difference, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract.
CFDs are derivatives products that allow you to trade on live market price movements without actually owning the underlying instrument on which your contract is based. You can use CFDs to speculate on the future movement of market prices regardless of whether the underlying markets are rising or falling. You can go short (sell), allowing you to profit from falling prices, or hedge your portfolio to offset any potential loss in value of your physical investments.
CFDs are leveraged products, enabling you to trade by paying just a small fraction of the total value of the contract. This means you can potentially magnify your return on investment. Remember, however, that higher leverage can result in losses that could exceed your initial deposit. Please see our risk disclosure concerning some of the risks associated with this type of trading.
FEATURES OF CFD TRADING:
Ability to Go Long or Short
CFD trading enables you to go long (buy) if you believe market prices will rise, or go short (sell) if you believe market prices will fall. So if you believe that a company or market will experience a loss of value in the short term, you can use CFDs to sell it today, and your profits will rise in line with any fall in that price. However, if the market moves against you, your losses will also increase. CFDs are therefore a flexible alternative to trading the movements of market prices as they enable you to benefit from any move, regardless of whether the markets are rising or falling.
Hedge your Portfolio
If you believe your existing portfolio may lose some of its value, you can use CFDs to offset this loss by short selling. For example, let's say you have a £5,000 exposure to the UK FTSE 100 shares in your portfolio. You can short sell the equivalent of £5,000 worth equivalent of this basket through a CFD trade. Should the UK FTSE 100 basket fall by 5%, the loss in value of your share portfolio would be offset by a gain in your short sell CFD trade. Many investors today use CFDs to hedge their portfolio, especially in volatile markets.
Offset your Losses
CFDs can be extremely tax efficient as, depending on your circumstances, you can use any losses you incur to offset against your Capital Gains Tax (CGT) liabilities. For more information, we recommend that you seek independent investment advice as this will differ by jurisdiction or even individuals circumstances.
We recognise the importance of being able to access your account and trade whenever you want, wherever you are, particularly when market prices are moving quickly. We therefore give you unrestricted access to your account 24 hours a day, 7 days a week. Furthermore, we run a number of our markets 24 hours a day, including major indices such as the UK 100 and Wall Street, meaning you can trade CFDs even if the underlying markets are closed.
CFDs are traded on leverage, meaning you pay only a small fraction of the total trade value to open your position rather than paying for it in full, this is known as margin.
You can use leverage to magnify your return on investment as your full trade exposure is much more than the initial deposit required for your trade. However, your losses are magnified in exactly the same way if the market moves against you and can lead to losses exceeding your initial outlay. Please ensure you fully understand the risks involved and seek independent advice if necessary.
No Stamp Duty
As CFDs are a derivative product, you don't actually own the underlying instrument. This therefore means that you do not have to pay a stamp duty, enabling you to save 0.5% on the value of each trade (currently in the UK). Please remember that tax laws can change and are subject to individual circumstances.
Wide Range of Markets
We provide CFDs on a number of individual markets including equity indices, currencies, energy, commodities and metals.
FCI Markets charges US$ 5 commission per lot per side on CFD's unless agreed otherwise with you.