Contracts for Difference (CFDs) have a number of features that differentiate them from other investment vehicles.
Trading using CFDs also provides you with a range of benefits that are not available through other methods of investment in the stock market.
MF Global Markets has developed its online trading system to allow you to take full advantage of CFDs and reap the benefits associated with this form of investment.
CFDs are traded on margin, with the profit or loss calculated based on the difference between the buy and sell price when the agreement comes to a close.
When arranging a CFD, you will only need to pay a percentage of the opening value of the shares, rather than the full price of the underlying shares.
The spread on CFDs is similar to the underlying shares, as is the price movement, giving you a similar level of exposure to traditional share dealing.
As with normal shares, commission is charged on a CFD. However, it should be noted that this is calculated based on the total value of the shares, rather than the margin paid for those shares under the CFD.
CFDs are also subject to interest payments and charges when held overnight. In the case of a long CFD position, interest will be charged you, while with a short CFD position, you will be paid interest.
You are able to take both long and short positions on the market through CFDs.
One useful feature that can be included in CFDs are stop loss orders. These give you the opportunity to set limits and stops on your accounts and, therefore, limit the amount that you can lose.
You can take out CFDs on shares in overseas markets, offering a level of access to instruments and markets that would otherwise be difficult to achieve.
Furthermore, certain corporate actions, such as special payouts and dividends, are reflected in the value of your CFD account.
One of the benefits to trading with CFDs is that the initial expenditure to enter the market is considerably lower than if you were to purchase shares.
The leveraged nature of CFDs also allows you to generate a similar level of exposure to shares trading, but at a fraction of the cost.
Some of the other major benefits that you can enjoy by investing in CFDs are through tax regulations.
There is currently no stamp duty payable on CFDs in the UK. It should be noted that tax treatment depends on individual circumstances and may be subject to change in the future.
Additionally, CFDs offer flexibility, allowing you to swap between different asset classes easily, depending on the mood within the market.
A further advantage of this type of investment is that the number of CFD tradable instruments is considerably larger than the number available through shares or options trading, providing you with access to a broad range of assets.
In addition, by speculating on shares that you do not own, you are able to profit from falling share prices. You must decide whether the underlying shares will go up or down when you enter into a CFD, giving you this option.
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