Contracts for Difference (CFDs)
CFDs or Contracts for Difference reflect the price movement of an underlying asset. When trading CFDs, you don’t own the underlying asset but speculate on the price movement of a financial instrument. A CFD can be based on stock indices, commodities or precious metals.
CFDs are a leveraged financial trading product, which essentially means you are trading on margin. Leveraged trading allows an investor to provide only a small upfront investment in order to open a much larger position. This means rather than paying the full value of the position, you only need to pay a percentage of the position. Trading CFDs increases your buying power, maximising your trading capital and potential profits. However, it’s important to note that leveraged trading also exposes you to more risk, as losses can be equally magnified if the trade goes against you, due to the fact they would be based on the full value of the position. This means that you could lose your entire investment if the trade goes against you, if you are a Retail Client. Professional clients can lose more than their deposits and they may be required to deposit additional funds to cover their losses.
Contracts for Difference can be used to speculate on price movements of the underlying asset. Index CFDs can also be used to hedge a long-term investment in shares against adverse price movements. As CFDs allow you to short sell and therefore make a potential profit from falling market prices, they can be used as ‘insurance’ to offset losses made in a physical shares portfolios without having to liquidate the shareholdings.
Gold is often seen as a safe haven in times of economic turmoil. Adverse weather conditions can have a negative effect on coffee prices in America or prices for cocoa in Africa and geopolitical events can move the price of oil. CFDs on commodities allow investors to speculate on global events as commodities are sometimes subject to significant price movements that may present potential trading opportunities.
However, remember that when trading CFDs, you never own the underlying asset therefore if the trade goes against you, you can lose your entire investment.
Trade CFDs with Capital Index
As a Capital Index client, you can trade index CFDs with up to 20:1 leverage and fast, reliable execution across indices, commodities, and precious metals.
For a complete list of tradable instruments please visit our Product Specifications