CFD's

A contract for difference (or CFD) is one of the financial market's fastest growing instrument that allow users to speculate on share price movements, without any physical stock transaction or the need for ownership of the underlying shares. CFDs are traded over-the-counter (OTC).

An arrangement between two parties made in a futures contract whereby differences in settlement are made through cash payments rather than the delivery of physical goods or securities.

Benefits:

Flexibility
In many jurisdictions, it is quite difficult to go short in an individual share. A CFD allows an investor to go long or short because one is trading on the price movement of a share or index without physically owning it.

Very low margin requirements
Unlike future contracts, CFDs have no fixed expiry date or contract size. Trades are conducted on a margin basis with margins typically starting at ten percent, which equivalent to USD1,000 for 1,000 shares.

Increased leverage
CFDs provides the investor an advantage to leverage their investment up to 10 times compared with the outright purchase under normal conditions. This higher gearing creates greater profits if one correctly anticipates movements in the stock price and vice versa.

Corporate Actions
Since CFDs mirror the price movement of the physical share market, the owners of a CFD will participate in stock splits just as they would if they owned the physical share. The only difference is that the CFD owner is not entitled to any voting rights.



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