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CFDs are an increasingly popular way to trade, thanks to their flexibility and the access they provide to global markets.
CFDs are traded on leverage, so you can increase your exposure to an underlying asset from the same initial investment. To open a CFD trade, you need to deposit only a fraction of the total trade value, usually around 10-30 per cent, allowing you to take a larger position than would be possible if you needed to fund it in full. 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.
CFD trading gives you access to a wide range of markets that would not otherwise be available to retail investors. It is as easy to trade on the price movement of commodities such as oil or gold as it is to trade an individual equity. CFDs also allow you to speculate on whole indices or sectors from a single trade.
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. As always, if the price of your trade moves against you, your position will result in a loss.
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.CFD's: Home
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