Private Investors Embrace CFDs
- Trading in CFDs has always been popular amongst the
England - 07/11/2011
professional community now private investors are using them too
Until fairly recently most people had no idea what CFDs were. However, now that
people do understand them they are seeing them as fantastic investment
vehicles and are embracing them enthusiastically.
A CFD or Contract For Difference allows investors to invest a small amount of
money and bet on whether the price of a stock, share, commodity, currency or
derivative will go up or down. If they bet correctly they make money if they bet
incorrectly they lose money. The cost of each transaction is low and the level of
commission paid on each transaction is also very low indeed.
How CFDs work
A simple example can explain the basics of CFDs. Let’s say you wanted to buy
100 shares in ACME Ltd and that the share price is currently £1 per share. Were
you to make this trade the traditional way you would have to find £100 to buy the
shares plus pay commission to buy and sell those shares. With CFDs you only
need to have a stake in each share. That stake is typically 5-10% of the value of
the share, so all you need, to trade 100 ACME shares, is £5-£10 to buy your 5-
10% stake.
If you bet on those ACME shares to rise in value and they do you get the
difference in the value they have risen by. So if the shares rise to £1.20 you get
100 x 20p (more or less), so on a £5-£10 investment you have made £20 minus
commission of around 0.1 – 0.6%. However, if you bet wrong and the shares fall
to 80p you have to pay out £20. As a consequence, CFDs are not for everyone in
small amounts you can cover those losses, but larger trades can soon get out of
control and mount into big losses.
Sunbird FX has been helping its clients to trade CFDs for several years now and
they have seen them grow in popularity over the past few years. This is in part
because people have less to invest.Plus more people are trading rather than
leaving their money in the bank getting eaten away by compensation.
Contact:
Sunbird FX
77 Sir John Rogerson’s Quay
Fitzwilliam Business Centre
England
Tel: 353 1 901 4561
Fax: 353 1 652 6581
http://www.sunbirdfx.com/