What is CFD Trading?

  • A CFD, or Contract for Difference, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract.   

    CFDs are derivatives products that allow you to trade on live market price movements without actually owning the underlying instrument on which your contract is based.

    You can use CFDs to speculate on the future movement of market prices regardless of whether the underlying markets are rising or falling. You can go short (sell), allowing you to profit from falling prices, or hedge your portfolio to offset any potential loss in value of your physical investments. Moreover, with over 10,000 markets to trade, you can gain exposure to markets you may not have had access to before. We offer prices on shares, indices, currencies, commodities and more. See an example of how you can trade CFDs with City Index.

    Go short example with £50 deposit:

    what is cfd trading? 

     


    CFDs are leveraged products, enabling you to trade by paying just a small fraction of the total value of the contract. This means you can potentially magnify your return on investment. Remember, however, that higher leverage can result in losses that could exceed your initial deposit. Find out more about leverage.  

    Features of CFD Trading: 

    Ability to Go Long or Short

    CFD trading enables you to go long (buy) if you believe market prices will rise, or go short (sell) if you believe market prices will fall. So if you believe that a company or market will experience a loss of value in the short term, you can use CFDs to sell it today, and your profits will rise in line with any fall in that price. However, if the market moves against you, your losses will also increase. CFDs are therefore a flexible alternative to trading the movements of market prices as they enable you to benefit from any move, regardless of whether the markets are rising or falling.

    Hedge your Portfolio

    If you believe your existing portfolio may lose some of its value, you can use CFDs to offset this loss by short selling. For example, let's say you hold £5,000 worth of Vodafone shares in your portfolio. You can short sell the equivalent of £5,000 worth of Vodafone shares through a CFD trade. Should Vodafone share prices fall by 5% in the underlying market, the loss in value of your share portfolio would be offset by a gain in your short sell CFD trade. Many investors today use CFDs to hedge their portfolio, especially in volatile markets.

    Hedging your Portfolio 

     


    Offset your Losses*

    CFDs can be extremely tax efficient as, depending on your circumstances, you can use any losses you incur to offset against your Capital Gains Tax (CGT) liabilities. For more information, we recommend that you seek independent investment advice.

    24-Hour Dealing

    We recognise the importance of being able to access your account and trade whenever you want, wherever you are, particularly when market prices are moving quickly. We therefore give you unrestricted access to your account 24 hours day, 7 days a week. Furthermore, we run a number of our markets 24 hours a day, including major indices such as the UK 100 and Wall Street, meaning you can trade CFDs even if the underlying markets are closed.

    High Leverage

    CFDs are traded on leverage, meaning you pay only a small fraction of the total trade value to open your position rather than paying for it in full, this is known as margin. For example, you can trade Vodafone shares by depositing a margin of just 5%. Our margins for the UK 100 and Wall Street start at just 1.5%, while margins for our major currency CFDs start from just 1%.

    You can use leverage to magnify your return on investment as your full trade exposure is much more than the initial deposit required for your trade. However, your losses are magnified in exactly the same way if the market moves against you and can lead to losses exceeding your initial outlay. Please ensure you fully understand the risks involved and seek independent advice if necessary. At City Index, we offer a range of risk management tools to help protect your trades against potential losses.

    No Stamp Duty*

    As CFDs are a derivative product, you don't actually own the underlying instrument. This therefore means that you do not have to pay a stamp duty, enabling you to save 0.5% on the value of each trade. Please remember that tax laws can change and are subject to individual circumstances.

    CFD trading in the UK is free from stamp duty, with the exception of Irish stocks, which are charged 1% of the notional trade value. This value is, however, refundable if you trade out within 30 days.

    Wide Range of Markets

    At City Index, we provide CFDs on thousands of individual markets including shares, indices, currencies, commodities, interest rates and sectors. You can use CFDs to gain instant exposure on all major global markets including the UK, US, Europe, Asia, Australia and New Zealand. Our competitive commissions, tight spreads and margins are some of the lowest in the market, with just 1-point spreads for the UK 100, Wall Street, Germany 30 and France 40. See our range of CFD trading markets.

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