CFD's

CFDs allow investors to speculate on share price movements (up or down), without the need for ownership of the underlying shares. You should also understand that unlike normal share trading as you do not own the shares, you will not receive the same benefits accruing from that ownership. Instead a margin of the total value of the trade is used, which can be as little as 5%, allowing positions to be leveraged by up to 20 times.

Consequently, relatively small movements can lead to substantial gains and losses because of the increased leverage. Unlike normal share dealing there is no settlement date and as a result positions can be held indefinitely. However these are subject to financing on the entire position, which is calculated on a daily basis.

Click on the following link to see a CFD example.

Download our Beginners guide to CFDs

Download our Advanced guide to CFDs

Download our Risk & Leverage guide

Why trade CFDs?

• Exempt from stamp duty *
• Leverage your investment by up to 20 times
• Increase exposure to asset classes for a minimum initial outlay
• Low commission rates
• No settlement date (i.e. rolling settlement)
• Profit in falling markets through short positions and from market advances via long positions
• Trade stock CFDs from 24 global exchanges
• 16 Index CFDs available including FTSE, CAC, Dow Jones, DAX
• Hedge existing portfolios
• Stop loss and trailing stop loss available
• Use your portfolio as margin
• Receive dividends on CFD positions

CFD trading strategies and investment techniques

CFDs can be used in a variety of different ways. Our advisory service allows you to benefit from our experienced and professional insight.

Short selling

Benefit from falling markets by selling stocks or indices you don’t own. During the credit crunch short selling has been a successful strategy, particularly in the banking, property and consumer sectors. Past performance however does not guarantee future success.

Hedging

Hedge your own equity portfolio by selling short leading indices and sector indices without actually selling your shares. This is often done to protect existing portfolios against short-term drops and can be best described as an insurance policy on your current portfolio against market falls.

Stop losses and trailing stops

Employ stop losses to limit your downside that are triggered when a certain price has been reached. Use a trailing stop that follows the movement of the CFD to maximise the gain and lock in profit. Collins Sarri Statham Investments recommends the use of stop losses as a risk management tool. Please note however that we do not offer guarantee stops and if the market moves against you, there is still the potential to lose out on your investment.

Leveraged trading

CFDs can sometimes be leveraged by up to 20 times. While profits may be significant, on the downside losses can be substantial. We advise that investors always leave some margin spare when trading CFDs so that if markets move against you then you will not receive a margin call

Pairs trading

A pair's trade helps to hedge market risk. This strategy is often used on securities in the same sector where their price movements are correlated on a day-to-day basis. When the correlation breaks down (i.e. one stock traded up while the other traded down) you would short the outperforming stock and buy the underperforming one, betting that the “spread” between the two would eventually converge creating a net gain.

Advised CFDs

Allow our experts to guide you in your CFD trades. We can provide informed recommendations to you including informed advice about all of the above strategies. This service is free of charge and is designed for both new and seasoned investors. Our daily market report will also help clients with new ideas, which are relevant to current market conditions augmenting CFD trading strategies.

CFDs are not for everyone

CFDs are margined products and carry a higher degree of risk. Due to the leverage involved it is possible to lose more than your initial capital. Bear in mind that if markets move against you, additional payments may be required.

Make sure you can answer “Yes” to all of the following questions. If you can’t, then CFDs may not be a suitable investment for you.

• Do you fully understand how CFDs work?
• Do you understand how you can make money and how you can lose money in these investments?
• Are you in a position financially to lose all, and possibly more, of the money that you are thinking of investing?
• Do you accept that the outcome of your investment may be that you will need to provide additional money if things go against you?
• If things do go against you, do you understand how much extra you might need to pay, and have you got funds to do this?

* Tax treatment depends on our individual circumstances and may be subject to change in the future.

Click here to view our full CFD risk warning