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Two top advantages of trading CFDs

by , 10 January 2014

Contracts for difference (CFDs) are an increasingly popular trading tool. But why is this? A couple of the major plusses of CFDs include low trading costs and having no expiry date. Read on to find out more about these two advantages of trading CFDs…

CFDs are one of the most popular products available to the private investor, the research team at FSP Invest in The Ultimate Contracts for Difference Guide explain…

Advantage #1: Low trading costs

CFDs allow you to trade without having to pay for the full value of the shares.

This is possible because you trade on margin. This provides you with gearing (also known as leverage) on the capital you invest.

So you can free up your capital and put it to other uses.

In most cases, the margin required will be 9% to 25%. This all depends on the underlying equity, its sector and the exchange where it is listed.

One of the advantages of trading CFDs, as opposed to buying the underlying share, is the savings in many costs associated with buying equities. There’s no stamp duty payable, VAT (depending on who you trade through), STT (Securities Transfer Tax), STRATE charges, lower trade commissions, and there’s no delivery of the physical asset.

Advantage #2: No expiry date

Under most circumstances, CFDs don’t have an expiry date.

This is one of the fundamental differences between CFDs and some other derivative products.

For example, a single stock futures contract will expire every three months. You either have to exit your trade or roll over into the next futures quarter, which, of course, has associated charges and fees.

Because CFDs have no expiry date, it means you can hold the contract indefinitely. But, bear in mind, financing costs add up if you hold a CFD for a long period of time.

So there you have it, two advantages of trading CFDs.

Two top advantages of trading CFDs
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