Contracts for difference

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16. Conclusion

If you are a frequent share trader, used to taking short term positions in the market, CFDs may well be worth investigating. They have a number of distinctive attractions:

• The ability to trade on margin
• The ability to trade indices and baskets of shares
• The ability to go short
• No stamp duty
• No fixed expiry
• The ability to hedge your equity portfolio and defer CGT
• Simple execution

They also come with a health warning:

• Trading on margin can result in high losses as well as high profits
• Financing costs on long positions can mount up

Provided you understand the risks, CFDS are an innovative tool for the experienced modern investor.

You have now completed the course. To test your knowledge, take the Assessment test.

1. What are CFDs? 2. The benefits of CFDs 3. Initial margin 4. Variation margin 5. Commission costs 6. Interest payments 7. Dividends 8. Example of a long and short trade 9. Comparison of CFDs to share investing 10. Comparison of CFD trading to spread betting 11. Types of order 12. Stop losses 13. Strategies: Pairs trading 14. Strategies: Hedging an equity portfolio 15. Opening an account with a broker 16. Conclusion

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