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CFD means Contract For Difference.
CFD offers you all the advantages
of shares trading, and you do not have the right to vote. In simpler
words, it is a contract that reflects price movements of shares,
indices or currencies. Trading takes place with regard to the margin,
and as in the case of shares trading, your profit or loss will depend
on the difference between the price of the purchase and sale.
However, CFD has a number of advantages for shares trading.
Initially CFD was used by large institutions in order to cover the costs of
shares trading in a most efficient way. Now CFD is becoming the
traditional trading instrument of private European investors.
Teletrade does everything possible in order to provide private traders access
to the advantages of trading with CFD.
CFD appeared on the market in the middle
of the eighties. This practice was first
applied in Great Britain. The main driving
force in developing this mechanism was
a desire to escape from stamp duty (0.5% of
the deal scope in case of shares
purchase/sale completely for own funds),
and to avoid difficulties with the
establishment of “short” positions for
certain shares on the “bear” market.
Cost efficiency
CFD is traded with regard to the margin. It offers
you the most efficient use of your capital along with trading safety,
as you need to allocate only a small part of your position cost. As a
result, you will be able to increase greatly the profit from invested
funds.
Flexibility
As
you are trading in order to increase shares prices or an index, since
you do not have shares physically, it is as easy to sell a share or
an index, as to buy them. The sale of a share or an index at the
beginning of trading is called “establishing a short position”.
It gives you the opportunity to profit from a reduction of the price
for a share. That is why when trading based on CFD you will be able
to profit both on the “bull” and on the “bear” market.
Variety
Since
a trading account allows to trade both on the Forex and Stock market,
you have the opportunity to profit from changes in currencies’
exchange rates and changes in shares’ costs.
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