Spreadbetting At WorldSpreads

Contracts for Difference

Contracts for Difference (CFDs) are growing rapidly in popularity and, for the experienced investor, are proving an attractive means of gaining exposure to the economic performance and cash flows of individual equities without the need to invest in the physical share. CFDs first entered the UK retail market at the end of the 1990’s and they have since become the preferred trading tool for the active private investor.
Equity CFDs are a very simple type of derivative that offer all the benefits of trading shares without having to physically own them . In essence, they are contracts that mirror the performance of the underlying cash market and as with trading the physical shares, the profit and loss is determined by the difference between the purchase price and the selling price .

The most important characteristic of a CFD is it allows you to post orders within the bid-offer spread, enabling the individual to become a price maker rather than a price taker. Also access to the main market also means access to real market prices giving absolute transparency and the pool of deepest liquidity trading on LSE level 2 prices..

Advantages of CFDs

Margin Trading – In many respects, trading CFDs is very similar to traditional share trading, the most critical difference from a trading perspective is that CFDs are margined products.
Unlike share traders, who have to pay the full value of their positions, a trade using CFDs only requires a deposit or margin balance, which for most stocks is 10% . For example, a deposit of €1000 would be all that is required to take an equivalent position of €10000 in the underlying equity . This represents a more efficient use of capital because,even though the CFD investors outlay is small in comparison with the equivalent physical trade, he will still be exposed to the same absolute profit.

Hedging – If you own physical shares which you don’t want to sell, even if you expect their value to decrease, you can open up a short position using a CFD on the individual share. In this instance you will compensate the losses you will incur by the profit made with the corresponding CFD.

Short Selling –CFDs offer the opportunity to trade the markets in both directions. Therefore traders can use CFDs to profit from having a short position when the price of the share goes down .

No Stamp Duty – CFDs do not attract stamp duty as no share transfer takes place and the investor thus gains an automatic saving of 0.5% over the equivalent purchase of traditional shares.

Market Prices – All our quoted CFD market prices will correspond to the underlying share price on the relevant exchange .

No Expiry – Unlike Futures contracts of Spread Betting an open CFD has no expiry date so investors can maintain their position, long or short, for as long as they wish.