Contracts for difference (CFDs)
Okay we are getting into a fairly specialised arena here, although CFDs are becoming more mainstream.
CFDs have become popular because they allow you to back your instincts and bet on a falling share price, as well as a rising stock movement.
Now, read this very carefully and over again if you don't understand. CFDs - The theory A CFD is a very sophisticated wager.
There are no shares involved. Instead the broker agrees to pay the difference between the starting share price and the price when the contract is closed.
Hence CFD - contracts for difference. But beware, this is a two way bet. So, if with a CFD trade you get it wrong then you could end up owing a lot of money - often more than you had initially staked.
CFDs - So why not buy the shares? Well, you can buy a contract at a fraction of the face value of the shares - usually 10-25pc of the value.
CFDs are a much cheaper way of dealing shares, particularly if you are a frequent trader.
With CFDs there is also the advantage of not having to pay stamp duty.
However, you still have to pay capital gains tax on your winnings.
In this section:
- CFDs - how do they work?
- CFDs - buying
- CFDs - shorting
- CFDs -trading
- CFDs - the cost