A CFD is a product that gives investors a number of benefits over traditional share dealing. Specifically the advantages include:
1. Lower commission rates (for advisory dealing)
2. Ability to gain exposure to a higher amount of shares using a small deposit
3. Ability to make money in a falling market (shorting)
4. No stamp duty on purchases
However one if its main advantages (leverage) is also the reason why it is a higher risk product. In other words, an investor’s profits and losses are multiplied.
As part of a balanced portfolio and if you are looking for an element of speculation, CFDs could be for you provided that you are sensible in your strategy and you are only using funds that you can genuinely put at risk.
If you have never traded CFDs before then it’s important that you understand how they work and the greater risks associated. That’s why at London Stone we offer free demo trading accounts so you can better understand the product. We also have a number of documents and worked examples so you can see how this product works in practice.
CFDs are particularly suited for those who are looking for short-term capital appreciation.