A contract for difference (CFD) is an agreement between two parties to exchange the difference between the opening and closing value of a position in a specific financial instrument, such as quoted shares, ETFs, commodities and foreign exchange. Dealing in CFDs allows you to gain exposure to the performance of those assets with a lower outlay. This is called trading on margin or leverage. The current structure of CFDs allows investors to participate in markets in a more tax efficient manner.
Although ideally suited to short-term trading, CFDs also provide a means to get long-term leveraged exposure to markets. Investors can take advantage of both rising and falling share prices by using long and short strategies.
Because CFDs are leveraged investments, profits and losses are magnified. Price movements will have a greater effect on CFD positions, and small adverse movements can result in large losses, depending on the amount of leverage. Therefore CFDs are inherently higher risk than investing in financial instruments directly.
Given our structured approach, we aim to make a profit regardless of market conditions. In advising clients in relation to CFDs, we concentrate on a select group of equities, and our dedicated analysts research our ideas.
Our online clients can also trade CFDs directly through our Davy Direct CFDs service.