CFDs are a popular alternative to physical shares dealing for a number of reasons.
See how CFD trading measures up to traditional shares dealing and find out which form of trading is most suitable for you using our handy table below.
¹Positions are adjusted to reflect dividends.
Unlike shares dealing, a CFD is a derivative product that enables you to speculate on the price moves of shares and other global markets without having to actually own the physical asset. This means that there is no Stamp Duty to pay.
With traditional shares dealing, you’d have to pay your broker the full value of the shares you want to purchase. For example, if you‘d like to purchase £10,000 Facebook shares, you’d have to deposit the full £10,000.
Importantly, CFDs are leveraged which means you only have to put down a small fraction of the total value of a trade (usually a deposit of between 2% and 10%) to get the same level of exposure.
Leverage comes with significant benefits and risks: your investment capital can go further, but you can also lose more than your initial deposit.
Unlike conventional shares trading, CFDs allow you to take a position on the value of an asset whether you think it will go up or down. So if you thought Facebook’s share value was overpriced, you could take a position on it falling. This would not be possible through traditional shares dealing.
The more the market moves in the direction you’ve predicted, the greater your profit. The more the market moves against the direction you’ve predicted, the greater your loss could be.
With CFDs, it’s important to remember that you’re trading on the price of the market, rather than physically owning the share. This means you don’t own any assets.
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.
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