The differences between CFDs and shares

CFDs can be purchased both long and short sold.

CFDs can be "long" or "short" to speculate on either the upstream or downstream markets trade. Going long If you anticipate that a stock will go up in value, you should buy the stock or in this case go long and buy a CFD action. If later sold at a higher price to make a profit. If you sell at a lower price, go to loss. (In both cases, the costs associated with opening and closing of the position taken into account in the calculation of profit and loss). Go short, if you anticipate that a stock will fall in value, they only have the opportunity to go short and sell a CFD on the stock. You can not sell the stock as the first transaction. If you later CFD buying again, to achieve benefits if you buy at a price lower than that originally sold. If you buy back at a higher price you originally sold for, go to loss. (In both cases, the costs associated with opening and closing of the position taken into account in the calculation of profit and loss). When you can go long and short, it opens the opportunity for profit in a falling market and efficient coverage of current positions file. Shares can only be purchased, but if you have a waiting point, you can sell back

Index-tracking CFDs or "crawlers index" is related to the development of a stock market index and can be traded both long and short.

This is an ideal way to ensure equity portfolios, if you are concerned about the outlook for the stock market in general. It is also an effective way to gain exposure to a particular stock index without having to familiarize yourself with all individual stocks in the index.

When trading CFD Unlike stocks, only a margin account are drawn instead of the total value of capital investment.

Usually, it is drawn only a margin of 5.10% of the bill. The disadvantage of this is funding costs when a CFD position is maintained. Example: You go long in 100 obese shares through a CFD position. XX-rate is 15 pounds, and holding CFD for six months. Originally drawn only GBP 75-150 (depending on the margin requirements for the particular action) account, unlike GBP 1500 if you had bought the stock. financing costs are based on interest rates in the country where you live. . Say interest rates in the short term in the country where you live, is 1.5% and the interest charge is 3.0% financing costs for long CFD position is calculated as: 100 x 15 x GBP 12.6 x 4.5% = 33.75 GBP. If you are short in a CFD, the cost of funding is only 1.5% in the previous example, since interest rates on short position credited to the account instead of subtracted. The orientation of investments through CFDs are therefore cheaper than through a typical margin account shares at a traditional bank or a brokerage firm.

With CFD trading online allows investments to be leveraged up to 20 times. This is also called the operating margin, which also increases the risk.

increased exposure also means that CFDs can result in losses that exceed your initial deposit. If the CFD price goes your way, it will not draw any additional margin in your account. But if the CFD price goes the wrong way, an additional margin will be required. CFD trading involves high risk oriented. It is possible to lose more money faster than your initial deposit and you may be required to make additional deposits at short notice. CFD trading is not for everyone, so make sure you understand the risks.

No fixed maturity dates in transactions with CFDs. The investor closes the position when you want to have loss of profit or cut.

Even if very own shares, CFD achieved with many of the benefits of stocks they own, such as dividends and share price is not known.

Unlike traditional share trading, you should not pay stamp duty on CFD trades. Stamp duty charged on inventories in some countries, such as Britain. Britain is generally tax timbre of 0.5% of trade and is a government rate.

CFD helps reduce the foreign exchange risk if the trade CFDs on international shares. This is because only purchase foreign currency equivalent margin drawn on the account.

Example

If you buy GBP 1,000 in the United States, you are buying GBP 1,000 USD and therefore is exposed to changes in the exchange rate USD / GBP.

If you buy GBP 1,000 US action through a CFD, you only purchase margin value (eg. 5%) of USD equivalent GBP 50, which is a minimal exposure to exchange rate USD / GBP in relation to the value of the position of the underlying stock.

Taxation of capital gains / losses on CFD may vary from taxation of gains / losses on shares. You should consult your local tax assessor before using CFD as hedging instruments in a portfolio.

If you invest in stocks, shares that must be disposed of Saxo Bank. If Saxo Bank go bankrupt, stocks generally safe. If you invest in shares through CFD, the gain or loss on CFD positions constitute a financial claim against Saxo Bank and therefore be part of the guarantee system of government that guarantees deposits of up to EUR 100 000 or the equivalent .

summary

It is advantageous to use CFD instead of stocks if you just want to maintain the investment for a short period (up to a few months). For longer periods to avoid financing costs if you buy shares. Only you can short stocks, sector or an entire index, or you can go long in a whole stock market index. CFD allow therefore to control the risk of a much more efficient way than with stocks.