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FAQ

What are CFDs?
CFD stands for Contract for Difference and is a contract between a CFD provider and the trader. The CFD trader makes a decision on whether they believe a certain share will rise or fall and decides on the number of shares they wish to trade. If the trade is correct, the CFD provider will pay the trader the profit which equals the difference between his opening and closing price multiplied by the amount of shares traded. If the trade is incorrect then the trader will have to pay the CFD provider the difference.
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What is Margin?
One of the main appeals regarding CFD trading is the ability to add 'gearing' to your positions. Generally speaking when you enter a CFD trade you will only have to deposit approx 10% of the contract value thus gearing your trade by 10 times. This obviously can magnify potential profits and of course losses.
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What costs are involved?
Your CFD provider will usually charge a commission for each trade usually between 0.10% and 0.25% but this can fluctuate depending on whether the provider is giving an advisory service or including the charges in the share price by widening the spread. Other charges will include be a funding charge where typically your CFD provider will be funding on average 90% of the trade value so you will be charged interest on the total value of your position at about 2-3% above the base rate of the country in which the underlying stock is traded. (see CFD examples for more clarification).
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What about dividend payments?
Despite the fact that you aren't taking physical delivery of the shares dividends are still applicable. On long positions you will receive 100% of the dividend and on short positions you will pay out 100% of the dividend.
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What markets are available with CFDs?
CFDs are available on a wide range of exchanges including FTSE, ASX, NYSE, Nasdaq and most of the far east and European exchanges. CFDs are usually available on the top companies traded on the relevant exchange in addition to CFD contracts on the actual index itself. Some providers will also offer CFD contracts on a range of commodities and FX contracts (check our provider comparison to find out more)
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What is 'going short'?
A large number of tradeable CFDs give you the ability to 'go short' which simply means selling first and buying back later. Traders would use this facility to take advantage of falling prices or to protect a current long position. (visit CFD examples and education to find out more)
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