• Contracts for Difference (CFDs) are tools for trading shares (long or short) using borrowed money, often called margin
  
  
• If you buy £10,000 of Vodafone stock through a traditional stockbroker he will debit your account the full £10k. But if the £10k is bought via CFDs only 10%-20% is needed to fund the position
  
  
• CFDs are geared investments. So profits and losses are multiplied considerably because of the fact the asset can be controlled with a reduced amount of capital (in the above example £1k-£2k instead of £10k)
  

CFDs are therefore designed to appeal to the stockmarket trader rather than the investor. Day-traders, short term traders, people who look for share price moves of between 1-20 days use CFDs. This is especially the case as CFDs can be used for shorting stocks, so enabling money to be made of falling prices.

Quick CFD Facts

• CFDs have been available in the institutional market for many years
  
  
• They were introduced to retail clients around 1998
  
  
• They now account for about 25% of the daily turnover on the London Stock Exchange (some even say they can account for up to 50% of the volume on certain days)
  
  
• CFDs are available on stocks traded on most Western markets including Wall Street

CFDs Offer Retail Investors 2 Main Advantages

The development of UK CFDs has opened two significant areas for private clients, specifically;

1. The ability to leverage (£10k can be used to trade up to £100k in stock)
2. The opportunity to go short, or profit from a decline in market prices

This in turn enables many more different strategies which clients can use for investment, speculation and hedging purposes.

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CFDs Are Simple To Understand

Unlike futures or Options, CFDs are simple to understand and further help and information is available on this link - CFD Examples

If you’ve dealt on the stockmarket before you should have little trouble in getting to grips with CFDs. However, it is important to take your time to fully understand how they work alongside their advantages and disadvantages.

One area to take particular care is with short selling, or the ability to make profits if a share price falls. To get a handle on short selling please read this guide - an introduction to Short Selling.

CFDs are available for these Stockmarkets