About CFD's

What is a Contract for Difference?

Contract for Difference (CFD) is an agreement (made between two parties) to exchange, at the closing of the contract, the difference between the opening and closing prices, multiplied by the number of shares detailed in the contract. 

Every CFD has a contract value. It is the number of shares in the contract multiplied by the price of the underlying share. The Contract Value will change in line with the changes in the price of the underlying share. A CFD is valued daily at the close of business mid-price of the underlying share.

Where does the concept “CFD” originate from?

The CFD concept originated during the 1970’s in the UK, firstly within the wholesale sports markets, and then within the financial markets. Today CFD's contribute up to a whopping 40% of the UK FTSE exchange. 

Can I take or make delivery of a stock by trading an Equity CFD?

No. A CFD is a financial instrument linked to the underlying share price. You will not acquire any rights or incur any obligations relating to the underlying share.

What Margin is required for CFD trading?

Your initial margin may range from as little as 1 percent for FX to 25 percent for less liquid markets. Initial margins may also depend upon the size of your trading account and the size of your actual position. More liquid markets, including the blue chips such as FTSE 100, are stocks that require around 10 percent deposit. Less liquid markets, or those that could be considered more volatile and arguably riskier types of stocks, may typically require higher margins, 15 to 25 percent, for example.

Will I have to pay Stamp Duty when buying an Equity CFD?

No. As no purchase of the underlying shares is involved no Stamp Duty (currently 0.5% of the Contract Value) is payable.

How often can I trade?

Provided that an account is sufficiently funded it is permissible to trade as frequently as desired. Trading will normally only be possible during the hours that the relevant stock market is open. 

Can I buy or sell a CFD?

Yes. You can buy (go ‘long’) a CFD and will make a profit if the value of the CFD increases. If you sell (go ‘short’) a CFD, you will make a profit if the value of the CFD decreases. 

What types of CFD,s are offered on the GFT Global Markets Platform?

We offer trading on major global exchanges and financial instruments. There are different benefits associated with each type of CFD, depending upon your trading style and level of desired risk tolerance. You can trade CFDs on individual equities, commodities, bonds and interest rates, stock indices and forex. For more detailed information on each type of CFD, please contact us.

Individual Equities

Individual equities are the most common type of CFDs, allowing you to trade individual shares on margin. Trading individual equity CFDs allows you to profit from rising or falling stock prices, while not actually owning the underlying share. We offer thousands of share CFDs from exchanges in Europe, the US, Australia and more. Trading CFDs allows you to avoid many of the costs and disadvantages that are associated with purchasing the actual shares.

Stock Indices

In addition to trading individual equities, you can also trade the major global stock indices on margin. Index CFDs are based on the performance of an entire stock index. This allows you to take a position on the direction of the entire market, not just an individual company’s stock. You can gain exposure to many different shares with one transaction. We offer stock index CFDs from exchanges in Europe, the US, Australia and Asia.

Commodity Futures

We have a number of commodities available as futures-based CFDs. You may take long or short CFD positions on these commodities, and can seek to capture profit during rising or falling markets.

Bonds and Interest Rates

You can speculate on the prices of various futures-based government bonds and interest rates. including:

Forex

Trade the exchange rate differentials on major currency pairs as CFDs. including:

There are many advantages to trading CFDs compared to investing with traditional methods such brokering shares (equities) or futures. CFD benefits include:

Profit on Rising or Falling Markets

It wasn’t too long ago that the only way to invest or trade the markets was to buy and hold, and hope that the market and underlying value of the share or stock went up. There were simply not very many choices for the average retail investor or trader. With the introduction of new and exciting trading products, including contracts for difference, buying and selling can now be performed as long as there is activity in the market, which is almost anytime of the day or night.

When you trade a CFD, it doesn’t matter if the market is moving up or down because you have the opportunity to profit from rising or falling markets. For example, when shorting, the goal would be to sell a position and try to buy it back later at a lower price to earn a profit. The same principle holds true for going long, which is when you buy a position and then sell it back later at a higher price. Of course, there is equal risk that the market could move in the opposite direction.

Wide Range of Trading Markets

More than six years ago, the retail contracts for differences or CFD market was quite young and the number of trading markets covered was very limited. Since then, the market has become increasingly popular for traders. In fact it continues to grow significantly each year. Like many other trading methods and derivatives, CFDs are becoming increasing respected as an asset class among traders and hedgers. One of the main reasons behind the growth and maturity of CFDs is that traders have so many options with this type of speculation, including the ability to profit from rising or falling market movements, anywhere in the world and in any asset type, all from one account, active traders find that retail CFD trading market is beneficial for speculation.

CFDs typically allow you to trade any U.K. shares with a market capitalization above £50M, any U.S. and European shares with a market capitalization above $500M or €500M, respectively, and all major global indices, commodities, futures and currencies. Certainly the diversity in trading makes CFDs as appealing, if not more appealing, than other active trading derivatives. With the growth of the Internet, you also receive the benefit of easily accessing widely available information for most of the underlying markets you can trade.

Lower Capital Requirements - Leveraged Trading

Contracts for difference offer traders flexibility in a number of ways, from the types of trades you can place to the actual size of your trades. You can easily execute almost any size trade (order) when you want to without having to put up the large amounts of capital required with many other trading markets or products. Because you do not own the stock, share or contract, you do not have to pay the full price of the share value.

A CFD is an example of “margined” or “leveraged” trading. With a margined trading product, you are only required to deposit a percentage of the value (also called lodge or lodging), instead of having to deposit the entire value of your position size with your dealer. This is also known as your initial margin (IM) requirement.

At GFT Global Markets, your initial margin may range from as little as 1 percent for FX to 25 percent for less liquid markets. Initial margins may also depend upon the size of your trading account and the size of your actual position. More liquid markets, including the blue chips such as FTSE 100, are stocks that require around 10 percent deposit. Less liquid markets, or those that could be considered more volatile and arguably riskier types of stocks, may typically require higher margins, 15 to 25 percent, for example.

One advantage of being able to trade on margin, or leverage your trading capital, is that you can trade the same size positions as you might with a stock or shares broker, but you would have more capital to trade more markets. This allows you to diversify or free more of your discretionary funds to use elsewhere. Of course, as you leverage more of your capital, you are exposed to a higher amount of risk.

For example, with 10 percent leverage, you would only need to deposit £1,000 to buy a CFD of £10,000 of shares. Therefore, a £500 profit would equate to a 5 percent return if you purchased the shares outright, but amounts to a return of 50 percent with a CFD. However, losses are calculated in the same way, so traders should be aware of the potential for magnified profits and loss.

Competitive Commission and Financing Rates

With us, there are very low costs to get in and out of the markets. Our standard commissions for most individual equity CFDs are 15 basis points (i.e., 0.15 percent of the share price times the size of your position), while all other types of CFDs  are commission-free. Financing is only applied to equity CFDS, FX CFDs and Index CFDs. Trades opened and closed on the same day do not accrue financing.

If you hold a long position (buy) you pay financing charges (e.g. LIBOR + 3 percent), and if you hold a short position (sell) you receive the financing payments (LIBOR – 3 percent). Our rates are based on the relevant overnight LIBOR (London Interbank Offer Rate), which is published on the British Bankers’ Association website (www.bba.org.uk).

No Stamp Duty on UK Shares

Because CFDs are a derivative (not physically owned like a share), there is currently no stamp duty to pay on trading UK equities. If you buy shares worth £10,000, you would have to pay £50 in stamp duty (this tax is due for every purchase and had not duration) . Certainly, if you were an active trader and bought and sold shares often throughout the year, you could pay a significant amount of stamp duty.

However, if you were to trade CFDs, you are not liable for the .5 percent stamp duty because you are not physically buying the stock. Over the course of an active trading period, you could save significant amounts of trading capital, alleviate broker fees and save the hassle of dealing with avoidable taxation for active investors and traders.*

* Tax laws can change. We do not offer tax or legal advice. A professional advisor should be sought if you need legal or tax advice.

Trading Flexibility

There are many flexible aspects of CFDs, from the ease of buying or selling in any market condition to the ability to place multiple types of trades (order types). In fact, you are afforded a range of orders that are specifically designed to assist you in managing your risk and capturing your profits. For example, if you placed a trade in the market and wanted to get out at a certain price in anticipation of capturing a profit, you could use a limit order to sell or buy at a certain price.

Another type of flexible order, a stop order, can be used to help limit your losses. A stop-loss order is typically used to get out of your trade when the market moves against you. For example, if you place a trade in the market and want to get out at a certain number of ticks if the market moves in the opposite direction of what you speculated, then you could use this type of order. A stop-loss order is used to buy or sell a losing position in the market.

Absolutely free award-winning software

We allow you to easily place trades through our user-friendly and absolutely free trading software, DealBook® 360. DealBook® 360 is built upon our award-winning software for online forex trading, DealBook® FX, one of the most comprehensive trading platforms in the trading industry. One of the main reasons DealBook® 360 outperforms any other in the industry is because it includes features such as free fully-integrated charting and free technical analysis tools, as well as instant order execution and one-click trading.

DealBook® 360 is simple enough for beginners to use, and is also completely customizable for more advanced or professional traders. Since this design caters to all types of traders, you can easily customize the program to fit your individual needs. For visual traders, DealBook® 360 provides the ability to place orders directly from the charts as well as edit your trades directly on the charting interface.

In addition, we offer you a service-focused dealing desk, staffed 24 hours a day to assist you with your trading. This ensures that you receive answers to your questions and the most accurate pricing on the thousands of markets that we offer. Our dealing desk also provides you with the ability to place your orders via telephone.

No delivery or trading expiration period

When you trade other markets, such as shares or futures, your trades typically expire on a certain date, sometimes as soon as one to two days. With some types of contracts for differences, however, you do not have to wait for a set expiry date for your transaction. And, you can close your position at any time to realize your profits or losses. This applies to equity CFDs, forex CFDs and index-based CFDs, other CFD markets are based on future prices and have expiration dates. However, you are still afforded the flexibility to trade more often than traditional market hours and avoid additional taxation.

Dividend adjustment credits on long positions

Dividend adjustments are credited to long positions (buy trades) and debited from short positions (sell trades) held after the close of business on the day before the share is due to go ex-dividend. The exact amount of the adjustment depends on the dividend tax treatment of the relevant country.

For CFDs, an adjustment will be made to the customer's account to reflect the effect of a bonus share issue, scrip or rights issue affecting the underlying share.

*Occasionally CFD's can be dealt in other stocks not listed