What does CFD stand For ?

 A CFD is a - Contract For Difference.
Contracts for Difference permit you to profit on share price movements both up and down without purchasing the underlying shares. A Contract for Difference on a share is set at the price of the share when the contract was first entered into. This contract is an agreement to pay the difference between the starting share price and when the contract is ended. CFDs can be used to short shares as well as speculate on a rising market.

What are the attractions of trading in Contracts for Difference ?

When taking out a CFD you pay between 10% and 25% of the actual value. This gearing effect can dramatically in creases profits (and losses). Unlike share purchases there is no Stamp duty to pay. This is because you never actually own the shares only a contract that makes you responsible for the difference in the share price movement.

You are liable for capital gains tax on any profits you may make just as you are with any normal share buying activities.
The holder of a CFD is also enjoys the befits of any dividend payments made by the company's shares on which the contract is based. This obviously only applies to any dividends actually paid during the tem of the CFD contract.

The increasing popularity of CFD trading is partly explained by the recent bear market as they do allow ordinary investors to sell short and take a view on and potential profit from a falling market. This ability to employ a short selling strategy was almost impossible to achieve for non professionals in the past. By going short you are gambling that the market will fall if it does not you will lose the difference between the starting price when you sold and the price you have to pay to close the contract.

What are the disadvantages of CFD share trading

The risks of CFD share trading are serious and can not be under-estimated. The gearing effect makes it very easy to lose much more money than you put down in the first place if your view of the market is wrong. The borrowing and gearing involved in trading in CFDs will magnify your profits AND your losses.

A Contracts For Difference Trading account

CFD brokers must always check the customer is fully aware of the risks and has the resources to meet any losses incurred

Contracts For Difference CFD Tutorial

 
Most CFD trading broker's will provide a CFD tutorial and other CFD training and learning tools. They will often run CFD training courses. The CFD training available from brokers can often be found as a web based CFD tutoria.
CFD share trading can be an exciting and interesting way to follow and understand the market and it is possible to make money trading FTSE CFDs you are more likely to be successful if you ensure you have a thorough understanding of both the risks and strategies involved. When considering which CFD trading broker to open an account with ask what CFD training they can offer.

Offshore CFD Trading

It is possible to conduct your CFD share trading off shore. However, most an offshore CFD trading broker is not likely to be covered by FSA regulations ( although they may be). They may be located in domiciles that do not enjoy the same investor protection than the UK. The reasons for Offshore CFD trading may be perfectly legitimate especially for non UK domicile or non UK citizens. However this area that requires very expert advice from professionals before opening a cfd trading account overseas seek advice form your accountant, solicitor or other competent professional.