Introduction to CFDs

The reason Contract For Differences (popularly known as CFDs) products were developed was to allow clients to enjoy full advantages of owning a stock, ETF, index or commodity position while not owning the physical underlying instrument. Normally, a customer will enter into a CFD contract at a quoted price. Now, the variation in that price of entry with the price at the close of the position is settled by cash. Hence the name Contract For Difference.

However, it is important to note that trading CFDs is not without its own risks. For instance, a customer could lose all the money deposited.

In CFD trades, customers can buy and close position by selling later. Also, customers could sell and close the day by buying. The term for buying is ‘go long’ while that of selling is referred technically as ‘go short’. If you sell at a higher/lower price than the one you bought at, you will get gain/loss accordingly.

There has been a remarkable growth in the CFD popularity over the past couple of years. In fact, it is believed that it is fast becoming the number one option for people who want to trade in the financial markets.

How CFDs work

Rather than purchasing 1000 shares of Alibaba from a broker, a customer could opt instead to buy 1,000 Alibaba CFDs on Plus500 Trading Platform. Assuming that Alibaba experiences a $5 dollar fall in price, the customer will make a loss of $5000. On the other hand, if the prices go up by $5, the same client ends up with a profit of $5,000. This is similar to if the customer had bought actual shares being traded on the bourse.

Plus500 Trading Platform offer CFD on common financial instruments. Its other benefits are that there is no Stamp Duty and no Exchange charges. It also eliminates the many problems that characterise trading with the underlying shares. These include delays and costs of physically delivering the shares, registration as well as custody or holding charges made by brokers.

Another important benefit with regard to trading CFDs is in the sense that customers are able to trade on margin by using leverage. CFD trading imply that customers are able to trade share portfolios, commodities or indices while not having to have large amounts of capital tied up. With regard to the above example, a customer purchasing $50,000 worth of Microsoft shares would only be required to pay an initial margin of $5000 for equivalent CFD portfolio.

In case there is any financial entitlement like dividends, this is adjusted for by using cash, and it goes directly to the account of a CFD holder. But the downside is that, unlike holders of equity shares, CFD holders do not wield any voting powers.

It is quite easy and straightforward to trade at Plus500. There are essentially no commissions or any hidden fees. Bid/ask spread compensate for the services of Plus500.

At the software’s main lobby, there is buy/sell prices for all available instruments. When you enter an order to purchase an instrument, the Plus500 platform lets you add a stop loss, trailing stop or profit limit. This not only protects your position but also your profits.
To know each instrument’s trading hours, just check the Trading Platform details link for the particular instrument.