CFD trading is a high risk activity and is not suitable for everyone. You should ensure you understand the risks involved before you begin trading. A CFD is essentially an agreement to exchange the difference in value of a financial instrument, such as a share, currency or commodity, between the time at which the contract is opened and the time at which it is closed, enabling you to profit (or suffer losses) on the underlying asset without actually owning the share, and enabling the investor to exploit both a downward movement as well as an upward one.

If we take shares as an example, each CFD would correspond to an individual company - such as BP, Rio Tinto or Barclays. It is quoted in exactly the same way, and its movement mirrors the ups and downs of the corresponding share. You can buy or sell a CFD whenever you wish and you can choose to hold a position for months or merely a few hours.

Unlike shares, you cannot take delivery of a CFD. Instead, you settle the difference between the opening and closing prices, and that difference is your profit or loss. You will not pay stamp duty (0.5% under current UK legislation) or any safekeeping or nominee charges.

Unlike normal share dealing, investors may choose to use leverage as a trading strategy. This removes the need to tie up large amounts of capital, and instead the investor can trade "on margin". This can be an effective way of realising larger profits from a small initial investment, but can of course lead to even larger losses if the trade is not successful.

CFD trader is a trading name of IG Markets Limited, a company registered in England and Wales no. 04008957. Registered Office: Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA. Authorised and regulated by the Financial Conduct Authority, Firm No.195355.

SVS Securities Plc. Registered in England and Wales no. 04402606. Registered Office: 20 Ropemaker Street, London, EC2Y 9AR. Authorised and regulated by the Financial Conduct Authority, Firm No. 220929. A Member of the London Stock Exchange and an HM Revenue & Customs Approved ISA Manager.

Risk Warning: Remember that Contracts for Difference are a leveraged product and can result in losses that exceed your initial deposit. CFD trading may not be suitable for everyone, so please ensure that you fully understand the risks involved. Trading in CFDs carries a high degree of risk, and prices may change quickly and go down as well as up. Past performance will not necessarily be repeated and is no guarantee of future success. CFD contracts can only be settled in cash. Transactions in CFDs may also have a contingent liability. Contingent liability investment transactions, which are margined, require you to make a series of payments against the purchase price, instead of paying the whole purchase price immediately. You may sustain a total loss of the margin you deposit with a firm to establish or maintain a position. If the market moves against you, you may be called upon to pay substantial additional margin at short notice to maintain the position. If you fail to do so within the time required, your position may be liquidated at a loss and you will be responsible for the resulting deficit.

The information on this site is not directed at residents of the United States or any particular country outside the UK and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Read our Terms of Business.