Contract For Differences (CFDs) Explained
Understanding the inherent characteristics of any investment or trading topic is vital to your success! As such, we’ll take a closer look at what CFDs are. This will give you a better idea of whether CFD trading online is something you’d like to get involved in.
What is a CFD?
Before we start looking at CFD trading platforms and subsequent accounts, it’s important to understand what a CFD is and what CFD signals means. A contract for difference – commonly referred to as a CFD – is a contract between a buyer and a seller. The contract stipulates that the buyer must pay the seller the difference between the current price of the underlying asset and the price of the asset when the contract expires. CFDs appeal to many traders as you don’t actually buy the asset outright. The primary task is to speculate as to the price movement of the asset and profit accordingly. The only value that is taken into account when trading in CFDs is the actual price change between the trade entry and trade exit.
Therefore, when you participate in CFD trading online, the contract can be between you and your chosen broker. Thus, there’s no need to use an exchange. This has led to a massive rise in interest and demand when it comes to CFD trading – particularly in the last decade.
Advantages Of CFD Trading UK
There are certain advantages to CFD trading online. We do press upon you to take into consideration the flip side to the coin. Although these advantages are prevalent, there are similar downsides that inevitably arise. It is always wise to base your decision on both sides to the coin as opposed to only weighing up the pros! Having said that, we’ve outlined a number of favourable factors.
Access the asset at a lower price
As we alluded to above, traders and investors needn’t purchase the asset when trading in CFDs. This enables you to access the underlying asset at a much lower cost. With lower margin requirements, it’s possible to put up a lot less capital upfront. The potential for greater returns is higher. But, and there is usually always a but; it is also possible to open yourself up to greater losses with higher leverage.
A variety of opportunities
With a CFD trading account, you’ll be able to trade CFDs in a range of different instruments. Nowadays, CFD trading platforms enable you to trade in stock, index, sector, commodity, and currency CFDs. This means you can bypass exchanges, if you so wish, and still access all of these options. Taking a long or short position is a lot easier when dealing with CFDs.
Ability to go long and short
This is especially true for those who are interested in shorting a financial instrument. Due to the nature of a CFD, and the fact that you don’t own the underlying asset, it is possible to short a CFD instrument without having to incur any borrowing costs.
CFD Trading Online
When it comes to trading CFDs online, you can do so via a number of different avenues. Regardless of whether you wish to trade, invest, or bet CFDs, you’ll gain exposure to financial markets. But, it is important that you choose to engage in CFD trading online as you think best. Let’s take a closer look at the ways in which you can do so.
When it comes to CFD trading UK, you’ll find that trading in CFDs is the talk of the town. A CFD is a financial derivative that is based in the underlying market. Trading CFDs, as we’ve outlined above, means you speculate in the price of the underlying asset. The option of trading CFDs is what you’ll find on CFD trading platforms.
Many wonder if there’s a difference in trading CFDs and investing in CFDs. Ultimately, this might come down to semantics. However, investing in a financial instrument usually presupposes that the individual is doing so over the medium- to long-term as opposed to trading in CFDs which can have a shorter time horizon.
CFD spread betting
Essentially, CFD spread betting and CFD trading is the same concept. Whether you engage in normal spread betting or CFD trading, both are margined products. Both of these activities involve speculating on the price movement of the underlying asset without owning the asset in question.
How We Test CFD Trading Platforms
When it comes to assessing the reliability and appeal of online CFD trading platforms, we apply a uniform approach. Our analysis takes a look at all the different factors that make up an online trading platform. This gives you the chance to assess which trading platforms meet our exacting standards. By using our trading reviews, you can also compare CFD trading platforms directly and narrow down your choice. Ultimately, we strive to bring you an objective viewpoint from which to choose CFD trading platforms that cater to all your trading needs.
Usability and design
We analyse the usability and design of the official website and trading platform. You’ll be able to find out more about the actual performance and functionality of the trading platform in question. This gives you a wider perspective as to which platforms excel when it comes to user experience and providing a streamlined trading process.
Licensing and security
We’re only concerned with trading platforms that are licensed to provide financial services in the way of online trading. The UK market is regulated and trading platforms must adhere to all regulatory practices. Added to which, our team will also assess the overall security. No matter how little or much you plan on trading in nominal terms, comprehensive site security is non-negotiable. It’s important that all data and finances are monitored and protected on a constant basis.
It is without a doubt that you will have a query or face a technical issue at some point in time. Without the necessary support in place, it’s extremely difficult to rectify any issues. The best trading platforms have customer support on standby whenever markets are open. You should be able to use a live chat function and be able to get in touch via telephone or email. In our CFD trading reviews, we’ll also assess the FAQ section and take a closer look at any additional resources that might serve you well. Having a conclusive and responsive customer support team behind you makes the world of difference.
Any online trading platform will have a variety of payment options available to you. You will need to fund your account in order to trade in CFDs. Without secure payment processing, the entire process becomes opaque. We’ll highlight which trading platforms manage to facilitate fast payments and have
Trading and account fees
We’ll also bring your attention to the relevant trading and account fees. You shouldn’t be charged to open an account. However, there are certain account fees that you might incur. Non-activity fees and the like may sway your decision. Plus, you’ll want to know exactly what type of trading fees will affect you. When it comes to CFD trading, there are spread fees. The best online trading platforms have tight spreads and commission-free stock – and possibly ETF – trading options.
Available CFD trading options
This specifically applies to CFD trading platforms. You’ll want to be able to trade in a number of different CFD instruments. We’ll assess what kind of contracts and underlying assets you’ll have access to. From stock CFDs to commodity CFDs, we’ll outline exactly what you can potentially trade in. This will give you a better idea of which trading platforms enable you to access the financial instruments that you are interested in.
The Best CFD Trading Platforms
Now that you know how to go about CFD trading UK and what CFD trading platforms should consist of, it’s possible to choose the best CFD trading platform for you. We do provide an editor’s recommendation of the best CFD trading UK platform. However, this recommendation might not always appeal to you. Each trader has a unique criteria that needs to be met. Therefore, we hope to provide you with a point of confidence from which you can then move forward from.
One of the best CFD trading platforms at the time of writing is eToro. It’s an extremely accessible online trading platform that enables you to trade CFDs. You’ll find that the platform is innovative and streamlined for a social trading experience. You can also download the mobile trading app, which possesses the same functionalities and trading tools as the desktop platform. You won’t be charged commission on stocks and ETFs. Spreads apply to CFD trades – a norm in the industry. eToro is regulated and licensed to offer online trading services. If you are starting out as an online trader, eToro is user-friendly. You’ll have access to stock, indices, currency, and commodity CFDs. Use our broker comparison to find the best broker websites in the UK.
Opening A CFD Trading Account
When it comes to opening a CFD trading account, you will first need to peruse our recommendations of the best CFD trading platforms. From here, it’s a hop, skip, and a jump to having your very own trading account. Although all CFD trading platforms will implement a slightly different registration process, the gist of it is all the same.
You need to visit the official website and click on the button that asks you to Join. From here, you’ll need a valid email address, username, and password. Creating a basic CFD trading account doesn’t take much more than this. A standard individual trading account that enables you to trade in CFDs is more than sufficient. You’ll need to complete your profile and submit any identification documents that might be required in order to verify your identity.
Once you have linked a payment method, you can deposit funds. This will give you the necessary capital needed to start CFD trading UK.
Stay Abreast Of The Latest CFD Trading News
At TradersBest.com, we understand that it’s important to stay abreast of all the latest market news. This is even more prudent when you engage in CFD trading. CFD trading provides you with a wealth of opportunities and you’ll be able to access a wide variety of instruments. However, this also means that you’ll need to track internal and external factors that affect the price of the underlying asset of the contract for difference. Understanding what might affect the price will enable you to better analyse the possible outcomes and give you the necessary insights needed to take a long or short position.
As you are trading on real-time movements of prices, reading the latest CFD trading news is a must! We’re committed to bringing you as many resources as possible. With the help of outside news coverage, you’ll expand your knowledge and improve your trading capabilities through foresight and well-timed trades.
Conclusion – CFD Trading UK
In conclusion, we hope to underscore the importance of a measured approach when you embark on CFD trading online. CFD trading UK is an exciting and fast-moving endeavour with a number of upsides. You’ll be able to access a variety of financial instruments at a lower cost. It enables you to short a position or go long, depending on your analysis of the asset. Without having to incur a large initial capital outlay, there is great potential to realise decent returns.
However, keep in mind that CFD trading is a lot less regulated and does pose a risk of substantial losses. Having to maintain an adequate margin and pay the spread of an entry and exit price. The trade-off between saving on traditional fees and paying spread costs must be weighed prior to trading.
We hope that you have found our latest CFD trading guide to be enlightening and useful. We have a range of guides, such as crypto trading platform UK and commission free trading, that cover all the online trading topics that might interest you. Stay in the loop with TradersBest.com.
CFD Trading UK FAQ
❓What is a CFD?
A contract for difference (CFD) is a contract between a buyer and seller. The buyer enters into the contract and must pay the difference between the current market value of the asset and the price of the asset when the contract expires. There’s much more that goes into CFDs and CFD trading online. To find out more about what CFD trading online entails, take a look at our latest trading guide at TradersBest.com.
💰Do I require a lot of capital to open a CFD trading account?
When it comes to opening a CFD trading account, you’ll find that CFD trading platforms have different pricing policies. However, this doesn’t mean you’ll need a large capital outlay to start trading. There are a number of costs involved when you actually start trading. To find out more about CFD trading online and the associated costs, take a look at our latest CFD trading UK guide at TradersBest.com.
💡Is CFD trading online complicated?
When it comes to CFD trading, you’ll need to have a comprehensive understanding of how CFDs work. This includes understanding market conditions, factors that affect the price of the respective asset, and how to engage in online trading. Once you have managed to attain a better understanding, CFD trading isn’t as complicated as you first might have thought. Take a look at our CFD trading online guide to find out more about it.
🔖How do I choose a CFD trading account?
You need to base your decision on a host of different factors. Different CFD trading platforms and subsequent CFD trading accounts cater to different types of traders. You’ll need to choose a trading account that caters to your specific requirements and preferences. Fortunately, we’ve highlighted how to go about picking a CFD trading account that suits you.
❗Is CFD spread betting risky?
It is important to realise that CFD spread betting can be an extremely risky endeavour to take on. You are able to open a large position without having to front the full amount from the get-go. This can pay off handsomely but it also has a major downside. Thus, you need to approach spread betting with caution and the much-needed knowledge. If you’d like to find out more about CFD spread betting, take a look at our latest guide to CFD trading UK. At TradersBest.com, our team of experts have crafted in-depth trading guides.