Amateurs And Day Traders Are Being Attracted To Contracts For Difference
A contract for difference (CFD) is an agreement between two parties to exchange the difference between the opening price and the closing price of a contract, multiplied by the number of shares, as calculated at the contracts close.
CFDs are available on the top 350 stocks in the UK as well as on selected stocks in continental Europe and the United States. By investing in a CFD, you are not the registered owner of the underlying share, so you will not have shareholders voting rights or access to product discounts. However, you are entitled to dividend payments.
You can trade CFDs on the internet or by telephone and will need an initial deposit of at least 10,000. CFDs are suitable for experienced investors. UK-based brokers will accept your business only on the basis that you understand the significant risks.
Like spread bets, CFDs are highly geared. You will buy on margin, putting up 10%-25% of your total investment, and effectively borrowing the rest from your broker. You will need to meet margin calls (market to market) initially from cash deposited in advance.
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