What are CFDs?
If you are interested in trading CFDs (Contracts for Difference) or just want to know how they work, you have come to the right place. CFDs are rapidly increasing in popularity, becoming the instrument of choice for short term stock investors and you should be aware of them too.
Check out our CFD education and try a free download of our SaxoTrader platform to help you understand the importance of CFDs.
What is a CFD
CFDs are stock derivatives that allow you to invest in stocks but offer many important advantages over traditional stock trading that make them ideal for taking advantage of short-term / intra-day stock movements.
Index CFDs are also available that offer a low investment price and all the advantages of Stock CFDs. Index CFDs are ideal for investing in major stock indices.
Why Trade CFDs instead of Stocks
CFDs on live tradable Prices
CFDs can be traded directly on live (un-delayed) tradable prices, while conventional stocks often require you to establish an exchange agreement to trade on live stock prices.
No additional commissions/No commissions outside spreads
Commissions for Saxo Capital Markets CFDs are built into the trading spread for convenience, making it easier to calculate actual profit/loss on positions.
CFDs on live stock prices
Direct Market Access CFDs (requiring an exchange agreement) are available to traders that want to trade directly on live stock prices.
Margin trading
Magnify small intra-day price swings by depositing only a fraction of the trade value in collateral (from as little as 5% for indices and from 10% for stock).
Trading on margin magnifies dividends as well as price movements and if you hold a long CFD position on its ex-dividend day, you will receive dividends as if you held the stock.
Take advantage of falling markets with direct short selling
With CFDs, short selling to take advantage of downward price movements in a stock is just as easy as buying the stock (going long).
Eliminates stock trading costs
CFDs also have the advantage that they are not subject to some of trading costs associated with trading traditional stocks including:
- Custodian Fees
- Stamp Duty - in many countries profits from CFDs are not subject to the same taxation as profits from stocks.
Financing charges on overnight CFD positions
You should be aware that for long CFD positions held past the end of the day's trading on the exchange, you will need to pay an overnight charge for financing the contract value.
CFD positions closed before the end of day on an exchange are not subject to overnight financing charges, and CFDs are therefore well suited to intra-day trading.
Short CFD positions carry no financing charge and you may even receive a small interest component.
Our free Trading Platform, a good place to start
A good place to start is by registering and downloading our SaxoTrader trading platform demo. The demo allows you to trade CFD stocks and indices from 24 exchanges on a fully functional trading platform on live prices on a risk free simulated account.
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