CFDs may seem like another confusing financial acronym, but the concept is very simple. A contract-for-difference is simply a side-agreement between two parties to pay each other the change in the price of an asset. Depending on which way the price moves, one party pays the other the difference from the time the contract was agreed to the point where it ends.
Because it's simply a side-agreement rather than a sale, there's no stamp duty to pay. And because you only have to put down a small deposit on your trades, you can make big money out of small moves in market. As with spread betting, you can trade on a huge range of different assets from only one account.
Beware, though. CFDs can be very risky in the wrong hands. The combination of borrowed money and fast-moving markets can quickly wipe out your account - and a lot more besides. These articles should help you to decide whether CFDs might be for you and if so, how to avoid the pitfalls.
What are CFDs and what can I do with them?
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What can I bet on with CFDs?
You can bet on shares (long or short), indices, commodities and foreign exchange. See our investment guides to commodities and foreign exchange for more.
How do I come up with ideas about what to trade with CFDs?
Technical analysis - spotting buy and sell signals from price patterns on charts - is the main source of ideas for most traders. Although aimed at spread betting, this article explains some key charting concepts for trading novices.
Since you have to pay tax on CFDs and not on spread betting, why would I want to trade CFDs?
Deciding whether or not to pay tax on profits sounds like a no-brainer, but there's more to it than that. Here's why.
Aren't CFDs extremely risky?
It's true that using gearing can rack up big losses as well as big profits. But you can also use CFDs to reduce risk. Even if you're using them to speculate, you can still limit how much you can lose how you manage your risks and you decide to get out with good money management.
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