Why trade CFDs?

CFDs offer a number of benefits over other forms of trading.

1. Leverage your investment potential

With CFD trading you can increase your exposure to an underlying asset from the same initial investment. This means that you can multiply the potential return (or loss) on an investment. This leverage is great news if the market moves in the direction that you expect, but it carries a high degree of risk if the market moves against you.

2. Reduce your capital outlay

Trading CFDs allows you to take an equivalent position to a direct purchase for a fraction of the initial capital outlay. For example you could choose to buy the equivalent of 10,000 shares in a company using a CFD, deposit 10 per cent of the trade value to meet your margin requirement, and leave the remaining 90 per cent of your capital earning interest in a bank account.

3. Access to global markets

CFD trading gives you access to a wide range of markets that would not otherwise be available to retail investors. You can also speculate on the price movement of a whole index, or of a market sector, with a single trade.

4. Profit when markets fall as well as rise

By "going short" (selling), you can profit from a falling market as easily as you could profit from a rising market by buying it. If you believe that a company or a market will experience a loss of value in the short term, you can use CFDs to sell it today, with the expectation that you can buy it back in the future by placing an opposing CFD trade. As always, if the price of your trade moves against you, your position will result in a loss.

5. Hedging other investments

As CFDs offer the ability to go short as easily as long, they can be used to provide "insurance" against price falls in an existing portfolio. For example, if you have a long-term portfolio that you wish to keep, but you feel that there is a short-term risk to the value of your investments, you could use CFDs to mitigate a short term loss by "hedging" your position. If the value of your portfolio falls the profit in the CFDs should offset these losses.