Contracts for Difference Trading Guide

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Financial Spreads: Spread Betting and CFD Trading

Losses can exceed deposits
CFD Trading

CFD Trading


What is CFD Trading?

A Contract for Difference (CFD) is an agreement to exchange the difference in value of a particular financial market between the time the contract is opened and the time it is closed.

A CFD is a derivative, which means that the price we quote is derived from the underlying market price, e.g. our US crude oil market is derived from the underlying price of the US crude oil market.

With CFD trading, you do not actually own the underlying asset that you are speculating on, you would buy or sell our market in the expectation that the underlying price will rise or fall.

Our CFD quote will follow the underlying market up and down.

Why Trade CFDs?

CFDs are a versatile form of trading that let clients trade:
  • Flexibly - You can speculate on markets to go up or down
  • Widely - We offer CFDs on thousands of markets covering stock indices, forex, commodities and individual shares
  • Tax Efficiently* - UK based clients do not pay any Stamp Duty

CFD Trading with FinancialSpreads.com

As well as the above benefits, with Financial Spreads you also get:
  • Low trading costs

    • No commissions or broker's fees
    • Tight spreads - e.g. our UK 100 market has a spread of just 0.8 points

  • User-friendly mobile and tablet apps
  • 24 hour trading on a range of popular markets - from 11pm Sunday to 9.15pm Friday
  • Low minimum margin requirements
  • Live advanced charts with technical indicators for every market
  • A range of trading orders including automatic Stop Loss orders on every trade
  • CFDs and Spread Betting from the same account
  • Practice your CFD trading with our free demo account


Indicative CFD Prices

Prices shown are delayed by 15 minutes, indicative only, and subject to our website terms and conditions.

Low Cost CFD Trading

As with our financial spread trading service, we are committed to low cost trading.

With CFD trading the primary costs for clients are normally the 'commission' and the 'spread', i.e. the difference between the sell and buy price.

Therefore it typically costs more to trade with companies that have high commission levels and wide spreads.

However, unlike many CFD brokers, Financial Spreads offers a commission-free service.

Instead of a commission, our profit comes from the spread we add to the underlying market.

Despite this, we do offer some of the tightest spreads in the market. E.g. the spread applied to FTSE 100 shares is 0.14%, i.e. just 0.07% per side of the underlying share.

This helps keeps your trading costs down.

It is important to note that if you keep your daily trades, i.e. Rolling Spot or Rolling Cash, open overnight then you may be charged a small overnight financing fee.

CFD Trading Risks

While Financial Spreads offers clients an array of risk management tools such Stop Loss orders, Guaranteed Stop orders, Limit orders and Trailing Stops, clients should be aware that both CFD trading and spread betting are leveraged and therefore carry a high level of risk.

You can lose more than your initial deposit so you should only trade with money you can afford to lose.

If you are trading, please ensure that CFDs and spread betting meet your investment needs and seek independent advice if necessary.

For more information on the risks, please read our full Risk Warning.

Quick Guide to CFDs

How Do I Calculate My Profit/Loss?

When pricing a CFD market, we create a 'spread' around the underlying market.

The 'Sell' price is the price you would sell the market at if you thought the price was going to fall.

The 'Buy' price is the price you would buy at if you thought the market was going to rise.

After deciding which direction you think the market will move, i.e. up or down, you choose the number of CFDs you want to trade.

The value of a CFD will depend on the market being traded but, as an example, with UK shares 1 CFD = the value of 1 share in pence, e.g. 1 Barclays CFD is currently 235p, i.e. the price of 1 share.

In contrast, if you were trading the UK 100 Index then 1 CFD = the value of the index (in points) x £1 per index point.

If you are correct and the market moves in your favour, then you will make a profit equal to the number of CFDs you traded multiplied by the distance that the market moves in your favour.

If you are wrong, you will make a loss equal to the number of CFDs you traded multiplied by the distance that the market moves against you.

So, if you were CFD trading on the Barclays share price, you might choose to buy 200 CFDs. If so you would make a profit/loss of 200p for every penny that the stock moved up or down.

UK 100 Index CFD Trading Example

Let's say that you decide to take a position on our UK 100 CFD market.

Once logged in, you see that our quote is:

6500.0 - 6500.8

You decide to buy 2 CFDs at 6500.8, the Buy price. (Remember, with the UK 100 Index 1 CFD is worth £1 per index point).

As an example, a week later, our quote might have risen to 6601.0 - 6601.8, so you decide to close your position by selling the 2 CFDs at 6601.0, the Sell price.

Because you bought the market:

Your Profit/Loss = (Closing Price - Opening Price) x Number of CFDs
Your Profit/Loss = (6601.0 - 6500.8) x 2 CFDs (at £1 per point)
Your Profit/Loss = 100.2 points x 2 CFDs (at £1 per point)
Your Profit/Loss = £200.40

But what would happen if the index had gone down instead? You would make a loss.

Let's say that our UK 100 market had dropped to 6393.0 - 6393.8 and you wanted to close your trade to prevent further losses. If so, you would sell your 2 CFDs at the Sell price of 6393.0.

Your Profit/Loss = (Closing Price - Opening Price) x Number of CFDs
Your Profit/Loss = (6393.0 - 6500.8) x 2 CFDs (at £1 per point)
Your Profit/Loss = -107.8 points x 2 CFDs (at £1 per point)
Your Profit/Loss = -£215.60

Note that for the sake of simplicity, we have left any overnight financing charges out of this example. To learn more please read our overnight financing section.

Vodafone Shares CFD Trading Example

Now let's imagine that you see our Vodafone CFD market priced at:

185.6-185.9

Your research suggests that the share price will rise so you decide to buy 1000 Vodafone CFDs at the Buy price, i.e. 185.9p. (Remember, with UK shares 1 CFD is equal to the value of 1 share in pence, in this case 185.9p.)

Let's say a fortnight later, the Vodafone shares have risen steadily and our quote now moves to 204.2-204.5. Therefore you could decide to close your trade for a profit. To do so, you would sell at the Sell price of 204.2p.

Your profit is calculated by subtracting your opening price from your closing price and multiplying the difference by the number of CFDs, so:

Your Profit/Loss = (Closing Price - Opening Price) x Number of CFDs
Your Profit/Loss = (204.2p - 185.9p) x 1000 CFDs
Your Profit/Loss = 18.3p x 1000 CFDs
Your Profit/Loss = 18,300p
Your Profit/Loss = £183

Of course, had the market moved in the opposite direction, you would have made a loss instead.

If our Vodafone market had actually fallen down to 170.3 - 170.6, you might have decided to close your trade in order to restrict your losses.

You would close your trade by selling your CFDs at the Sell price of 170.3p.

Your Profit/Loss = (Closing Price - Opening Price) x Number of CFDs
Your Profit/Loss = (170.3p - 185.9p) x 1000 CFDs
Your Profit/Loss = -15.6p x 1000 CFDs
Your Profit/Loss = -15,600p
Your Profit/Loss = -£156



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