There are a number of things to look at when deciding upon which provider to sign up with.  The criteria you should look out for will depend upon your requirements.  This guide looks over the main things to consider before risking your hard earned cash.  There are some great companies out there to look at but you really don’t want to have your funds tied up with the next MF Global.

Leverage

The first thing we will look at is leverage and this will matter only to those people who have a high risk/reward appetite.  Leverage is the amount of money a provider will give a trader to deal with.  You could look at leverage in the same way as a loan as this is essentially what it is.  You open a contract worth X amount but are only required to put down a small percentage of this figure in the form of a deposit (imagine you are using the loan to buy a car).  By having this extra margin available to you, you are able to open larger sized contracts (or buy a nicer car!).

Leverage is not important to everyone but if it is to you then you will want to shop around to make sure you are getting the most bang for your buck.  It is worth pointing out that the amount available will not only vary from provider to provider, but also from market to market.  The amount of margin a provider will require might be substantially more on say gold, than it might in the forex markets.

Demo Account

If you are new to CFD trading then you might require access to an account where you can try the system to see if it is for you.  In this case you will want access to a demo account which many providers offer.  Demo accounts function in the same way as real money accounts but use demo money rather than real, hard cash.

Promotions

If you are anything like us and enjoy a freebie then you might want to consider a CFD provider that offers a sign up offer.  Many offer such things as safety nets that provide money back to the client if a loss is incurred.  For example, a company called ETX Capital return up to £250 back to the client if they make a loss within ten working days of opening the account.  Another company called Intertrader give 10% of the initial deposit to the client up to the value of £1000.

The Platform

As with anything in life, there are good and bad things.  The same applies to CFD trading providers and the platforms they provide.  At the end of the day, if you are going to be using the software for long spells then you are going to want it to function well and look, nice.

Cash back

A relatively new proposition in the CFD trading world is cash back.  A provider, such as Intertrader, that offers cash back, basically pays you on a monthly basis a percentage of what you have incurred in terms of spreads.  It works in a similar way to rake back that you may have come across n poker sites.

Be aware that some sites will compensate for what they pay in the form of cash back by charging higher fees for opening and closing contracts in the first place.

CFD Trading is an extremely useful alternative to dealing shares through a traditional stock broker.  There are a number of reasons that make it a superior method and this guide will discuss each in turn.

If you have used a share dealing service before, you will be well aware of the costs involved.  If you only buy smaller number of shares then you will also know costly this method can be for getting involved in the stock markets.  When you are paying £15 to make a purchase and £15 to sell your shares, any investment under £1000 can take time to recoup these fixed costs.

The costs involved with CFD trading can be much more preferential to an investor.  Although there are costs involved, they can be considerably less and in many cases, will bring about a saving.

Leverage

Leverage is a tool that is extremely handy for those people that like to take higher risks.  The more leverage on offer from a CFD trading provider, the less of a deposit that is required to open a contract.

When you buy shares, you can only make a purchase for the funds you have available in your account.  If you only have £100 available, this is the most you can spend of shares which can be very limiting when compared to other options you have in your investment arsenal.

CFD trading provides margin that means you can open contracts that are worth substantially more than what you have available in your account.  In some instances, you are only required to have 1% of the contract value up front.

Although leverage means you can make vast sums of money very quickly, it is important for people to know that equally large sums can be lost just as quickly.

When using leverage, any trader will want to use a stop loss to limit the potential downside of a trade.  A stop loss is a predetermined price that you can set up where a contract will be closed.  For example if you bought a BP contract at £4.50 and couldn’t afford the loss if it went below £4, you could set up the stop loss to kick in at this price.

Go Long and Short

One massive difference between share dealing and CFD trading is that the latter allows you to take positions on a price increasing or decreasing.  Share dealing only allows you to take out a position where you are wanting the price to rise.  CFDs allow for you to go short which means a decrease in the company’s value will provide you with profit.

The ability to go short means three things.  First of all it means that you can hedge against situations that can negatively affect your portfolio.  Secondly, if you thought negative news was going to be released that would adversely affect a share price, you could bet on the price going down.  Thirdly it allows you bet on falling markets.  If you were watching your screens and witnessed an all out crash in stock market prices, you could follow suit and buy into the fall.  If you only had share dealing at your disposal, you could of course not do this.

Stamp Duty Saving

As well as offering the ability to trade on margin, CFDs allow users to save on stamp duty costs.  Due to the fact that a CFD is a derivative instrument and the trader never actually owns any assets, they are not liable to pay stamp duty when opening/closing a contract.  This differs to share dealing where stamp duty is paid whenever you make a purchase.

There are other forms of trading that have similar advantages over share dealing.  For example many people choose to use spread betting as it also provides leverage and also has the added bonus that winnings are available to user’s tax free.  The savings here can be extremely high for those people that bet regularly or with large amounts of money.

Again, please be advised that CFD trading is high risk and should only be used by those people that can maintain control.

The Art of Contracts For Difference

CFD Trading is the perfect method to make money from the stock markets by essentially betting on prices moving. You can trade them on a variety of markets for instance commodities, stock prices and rates.

It is very easy to get started with Contract For Difference investing – just check out one of the big services such as Intertrader or ETX capital to find out more.

There are many reasons why individuals begin trading Cfds. One of the biggest reasons is that people are able to take benefit from leverage meaning they can take positions worth considerably more than what they  put in advance. This is ideal for those who do not have instant access to a large amount of  funds but aspire to make lots of money.

Another really good thing about CFD trading is that it is incredibly easy to learn. You don’t require a PHD in finance to know how to trade but it will help if you have dealt shares before.

In the UK, Contracts For Difference trading results in a tax advantage over dealing company stocks and other methods of financial investment. By trading a Contract For Difference it is not necessary to pay stamp duty which may save considerable amounts of cash if you are the sort of person to trade often.

For some people, the most important things about The third benefit of Cfds over more wide spread types of investing is the fact that it is possible to take positions on prices increasing and going down contrary to dealing shares where you can only take out a position on a share price increasing. This is great for investors because it means investors can protect other investments by hedging and also, if you happen to spot a downward trend, you can take advantage of it.

As you have seen, Contracts for difference trading is a really fun way of getting involved with the markets and it possesses countless benefits to take advantage of. If you intend to begin trading then there are several great providers that can be used.

Please note how the trading of CFDs is high-risk and you can lose large amounts of money if you aren’t wary. This is the reason why  you use a company that allows a stop-loss capability so you are able to limit the money you can potentially lose. For more information please feel free to get in touch with questions you may have or if you like some help with what cfd supplier to sign up with. Good luck and happy trading!