The meaning of a contract for difference (CFD) is that it is an agreement between two parties to exchange the difference in a market’s price from when the contract is opened to when it is closed. You can use them to trade 1,000s of global markets, without taking ownership of any physical assets.

CFD trading means that you don’t own the underlying asset, unlike traditional investing. It enables you to speculate on the price movement of a whole host of financial markets such as indices, shares, currencies, commodities and bonds – regardless of whether prices are rising or falling. And because you are speculating on price movement rather than owning the underlying instrument, you will not pay UK Stamp Duty on any profits*.

CFDs are a popular way for investors to buy and sell a range of financial markets, bringing several benefits for active traders:

• Tax efficiency
  You are not required to pay UK Stamp Duty

• Flexibility
  You can trade on falling markets as well as rising ones, without borrowing any stock

• Leverage
  By using a small amount of money to control a much larger value position, you don’t have to tie up lots of capital

• Hedging
  As we’ve covered, you can use a CFD to mitigate losses in an existing portfolio

• Suitability for any strategy
  You can hold a CFD open for as long as you want – whether that’s seconds or months

• We offer Price Action Analysis and Trade Signals for the UK FTSE, German DAX, US S&P500, US DOW30 and US Nasdaq CFD Markets.

Note: Most CFD brokers offer a choice of 1,000s of CFD markets, including:

• The world’s leading indices: the FTSE 100 (UK 100), Dow Jones (Wall St), DAX 40 (Germany 40) and dozens more

• GBP/USD, GBP/EUR, EUR/USD and 80+ more FX pairs

• Global Shares

• Commodities including oil, gold and cocoa 

• Other markets such as bonds, interest rates and options

As CFDs are leveraged, it’s a good idea to manage your risk carefully when trading with them. Two key tools to help control risk on each trade are take profits and stop losses.

Take profits – also known as limit orders – will automatically close your position if it hits a certain profit level. In doing so, they help you stick to your plan when you may be tempted to hold onto a winning position, despite the risk that it may reverse.

Stop losses also automatically close your position, but they do it once it hits a specified level of loss. They help limit your total risk from any given trade. However, standard stop losses aren’t 100% effective as they can be subject to slippage if your market ‘gaps’ over your stop.

In CFD trading, leverage is the ability to trade without paying for the full value of your position upfront. Instead, you only have to pay a deposit called your margin.

While leverage is a powerful benefit, it will also increase your risk. So, before you start trading on margin, it’s a good idea to learn how it works – and how to manage risk using stop losses.

Yes. The leverage and range of markets available with CFDs make them a popular option among day traders:

• Leverage magnifies profits and losses, which can be useful when trading relatively small price movements

• The range of markets helps day traders save time, accessing thousands of opportunities from a single login

While they are both derivatives – financial products that enable you to speculate on markets without buying assets – and both take the form of a contract, CFDs and futures work very differently in practice.

When you buy a future, you are agreeing to trade a set amount of an asset at a set price on a set date (known as the expiry). If you hold a future when it expires, you’ll have to either buy or sell the underlying market – whether its oil, gold, forex or shares.

With a CFD, you are agreeing to exchange the difference in an asset’s price from when you opened your position to when you close it. You’ll never have to take ownership of the asset itself.

CFD trading is ideal for investors and traders who want the opportunity to try and make a better return for their money.

However, it contains significant risks and is not suitable for everyone. We strongly suggest trying out a demo account before you get started with your own capital.