What is a CFD?
CFDs are a flexible, cost effective way to trade equities on margin .
A Contract for Difference (CFD) is a financial instrument which permits you to trade on the price movement of the underlying asset.
If you understand how buying and selling of other financial instruments works, the concept of CFDs is not difficult to grasp. A CFD offers you all the benefits of trading shares without physically having to own them. It is a contract that mirrors the performance of the underlying instrument.
A CFD is not traded on an exchange, rather it is an agreement between you and a trading company such as a bank or broker. It stipulates that the buyer of the contract will pay the seller the difference between the current asset value and its value at contract time. If this difference ends up being negative, then it will be the seller that is required to pay the buyer.
Say you wanted to trade 100 shares in Apple. You could buy these shares through a broker, paying the full value of the shares plus commission. Alternatively you could buy 100 CFDs in Apple at the current market price. This would give you exactly the same exposure, but to open this contract you would only have to supply a margin deposit and pay a small commission dependant on the specific Trading Plan you have signed up for.
Selling shares through a CFD provider is easy. You just open your contract to go short rather than long .For this reason CFDs are often used by clients who want to hedge an existing investment portfolio. If you are concerned that you are over exposed to a particular financial asset, or that a piece of data is going to be released that will adversely affect a share price ,you can go short using a CFD and protect yourself against excessive losses.
Margin is an aspect of CFDs that should be understood by anyone prior to getting involved in trading.
Although margin trading (leverage) can help you make substantial gains with relatively small sums of money, it can also generate losses very quickly. When you open a contract for difference it will be dealt on a margin basis,meaning you are required to pay a percentage of the value of the shares purchased in the form of a deposit. This is known as your Initial Margin .
Again, due to the nature of margin, it is important that you understand that CFD trading is a high risk form of investing and you should only trade with money you are prepared to lose.
Why Trade CFDs with DRS Markets?
Tight Spreads on over 8,000* US Securities, you trade on the Touch Price!**
Trade using our flexible platform or our user friendly Mobile App
Benefit from Real time streaming Market News
Gain a Day Trading edge with our Top List and Most Active stock screens
Simple, transparent Margin Rates
Competitive Commission rates and low initial deposits
Subject to availability **subject to liquidity, please see Order Execution Policy
CFDs are a leveraged product and carry a high level of risk to your capital as prices may move rapidly against you.
It is possible to lose more than your initial investment and you may be required to make further payments.
You should only speculate with money that you can afford to lose.
These products may not be suitable for all customers therefore you must ensure that you understand all the risks involved in trading CFDs.
DRS Markets Ltd is Authorised and Regulated by the Financial Conduct Authority No. 744943