CFD's

Contracts for difference (CFD’s) are leveraged equity derivatives that allow you to make a directional bet on the underlying asset without owning the security.

An investor can take a ’long’ position to benefit from an increase in the price of the underlying asset or take a ‘short’ position to benefit from a decrease in the price of the underlying asset. A ‘long position is analogous to buying the underlying security whereas a ‘short’ position is analogous to selling the underlying security.

An important difference to trading the underlying asset is that CFD’s can be traded on a ‘margin’. This is typically between 10% and 20% of the value of the underlying stock and unlike shares they are exempt from stamp duty.

Thus, our clients can profit in both rising and falling markets and because of the leverage involved the returns generated can be much greater than if the underlying share had been bought or sold. For example £1,000 invested in equity will generate you a 5% return if the share increases in value by 5%.

The same £1,000 invested in CFD’s with a 10% margin will allow you to hold positions worth a total of £10,000. Consequently, thus your investment in CFD’s will generate you a 50% return if the value of the underlying shares increase by just 5%.

Investors should be aware that CFD’s carry a high potential risk and your losses may exceed your initial investment.