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Trading contracts for difference (CFDs) come with many of the benefits of owning shares

by , 20 January 2014

When you trade CFDs, you benefit from a number of advantages. And you can also benefit from what happens to the share itself and that's not just a movement in the share price. You can gain from dividend payments amongst a whole host of other things. Let's take a closer look at these additional benefits when you trade CFDs…

Trading contracts for difference (CFDs) have a number of benefits, the research team at FSP Invest in The Ultimate Guide to Trading Contracts for Difference explain…

These benefits include low trading costs and no expiry dates. And you can use CFD positions to hedge your current share portfolio.

But there is also another benefit to trading CFDs. When you hold CFDs, you can gain from all the benefits of holding the actual share…

The company you trade CFDs with will usually alter the cash positions in your CFD account to reflect events of corporate action. This includes the payment of dividends, rights issues, stock splits, etc. In some cases, the company you trade CFDs with will adjust the price of the CFD to reflect an event.

When this happens, it’s called an adjustment to the CFD position. In other words, you’re replicating exactly the same action as if you’d owned the physical underlying instrument.

Whoever you chose to hold your CFD positions with will adjust your cash position should any of these things happen if you are in the trade at the time.

But when these events happen, it depends on what CFDs positions you hold.

What happens when a company pays out a dividend?

For instance, if you have a long position (you buy CFDs), you will receive the dividend payment. But if you’re short CFDs (you sell CFDs) you’re liable to pay out the amount of any dividend declared.

So there you have it, how trading CFDs come with many of the benefits of owning shares.

Trading contracts for difference (CFDs) come with many of the benefits of owning shares
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