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About CFDs

Many people liken CFDs (contracts for difference) to trading shares on margin, i.e. buying shares and only lodging a security deposit which is typically between 10% - 20%.


In fact it is an agreement between two parties agreeing to settle at the close of the contract the difference between the opening price and closing price of the contract, multiplied by the number of shares specified in the contract.


A simple example:

In September you might agree to buy 5000 Halifax shares at £6.00 (total value of £30,000). You lodge a 10% margin deposit of £3,000. In November the price of Halifax shares moves to £8.00 say, and you agree to sell at this level. You receive a gross profit of £10,000 (i.e. £40,000 less £30,000) and your deposit is returned. (Note: this is a simplistic example designed to explain the concept only. The full costs and risks of trading are explained below).

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Futures, CFD, Margined Foreign Exchange trading and Spread Betting carries a high level of risk to your capital. A key risk of leveraged trading is that if a position moves against you, the customer, you can incur additional liabilities far in excess of your initial margin deposit. Only speculate with money you can afford to lose. Futures, CFD, Margined Foreign Exchange trading and Spread Betting may not be suitable for all customers, therefore ensure you fully understand the risks involved and seek independent financial advice if necessary.

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