• Margin
• Stamp duty

Margin is covered in detail on this site. CFDs are traded on a margin which is the same as a loan on the position. The margin is typically 10% which means you have a 10x magnification on the profit of your trade. So if you were to open a position of $10,000 at a 10% margin, you would only need $1,000 up front to cover the costs.

If you hold the position for 2 weeks and there is a 10% gain in the price of the stock, you will have doubled your money in that two weeks. This is very powerful if you can spot a trend and jump on it early.

Another benefit of short term CFD trading is that in many countries such as the UK and Ireland there is a stamp duty waver which you would have to pay if you owned the actual shares. This can make a big difference if you are a high volume trader opening short term positions. The savings can sometimes be more than 50% in commission and brokerage fees which can greatly help your bottom line.

Of course with great leverage comes great responsibility. And these large profits can quickly turn into losses if you don’t manage your risk correctly. So be careful when trading CFDs and make sure not to over extend yourself.

CFDs (contracts for difference) are a relatively new tool in the financial world. In a nutshell they are a form of financial derivative that allows a trader to take a position on an underlying asset without actually having to purchase the asset itself. This means you can take a position on a number of assets such as FOREX, Commodities and Shares. This article we will focus on trading share CFDs online.

You can trade share CFDs online through your CFD account. What this means is that you can purchase a CFD which will be priced the same as the share you wish to purchase at that current time of purchase, but you won’t actually own the share, you will instead own a CFD which is valued the same as a share. There is a large variety of shares that can be purchased through a CFD broker, but not ALL shares can be traded through CFDs. CFD providers tend to stay away from illiquid shares, so it’s usually the larger shares that are traded more often that are available trough online CFD platforms.

Here are some of the reasons you would trade CFDs instead of trading the actual share:

You want to trade on leverage. If you want to make a large trade, you can purchase most shares between 5-20% margins. This means you only need a fraction of the money to open the position. If you have a hot tip or a “sure thing” using the power of leverage can drastically increase the return you receive on your trade.

You want to hedge your current portfolio. If you already own a large position of shares in a portfolio and you want to hedge this investment because you suspect there is going to be some down times in the short term future, you can open a short CFD position of the same value as your share holding. This will protect you against any negative movements in the share price.

Why you wouldn’t trade CFDs instead of the actual share:

You are looking for a long term investment. The leverage and interest factors of CFDs mean that there is depreciating value the longer you keep the position open. Thus if you are looking for a long term investment (6 months plus) you shouldn’t choose to trade with CFDs.

If you do decide to go down the intraday trading route, CFDs are a perfect tool to achieve this. They are a leveraged product firstly which means large positions can be opened for a fraction of the cost, usually 5-20% of the position. This allows you to maximise small ticks in the price of stocks through the day ensuring the most profitable returns.

CFDs are also available on a wide variety of financial products, allowing the trader to select they type of product they favour most and the product they have the greatest experience and knowledge with. You can trade FOREX, commodities, indices and shares in multiple markets.

It is also very simple to go short with a CFD. Thus if you get a read on a particular stock or currency that is negative, you can maximise on that opportunity too. Something that was very difficult in the past when dealing with standard shares. This factor alone basically doubles the opportunity to make money intraday trading.

The fact that you are not holding a CFD overnight can also be beneficial as it removes you from the risk of the large price movements that typically occur overnight. Plus CFDs charge interest on long positions, but only when the CFD is held overnight so intraday trading will remove the risk from this practice.

Rarely will any underlying asset change greatly in price over the course of a single day. Thus to be profitable in intraday trading it is important to control very large quantities of stocks.  If you do not have large starting capital it would be impossible to access the kind of profits that CFDs provide any other way.

There are many providers out there that let you trade FOREX. You can simply open an account and say you want to purchase x amount of dollars and sell x amount of Euros and hey presto, it all happens automatically.

Contracts for difference (CFDs) work as a form of financial derivative that creates a contract between two parties that states that one party will have to pay the other the difference in the value of the underlying asset that the contract was made on.

What this means is that you can make a contract saying you will buy the USD at $1.10 Canadian Dollars, and if it is higher than that (say $1.20 Canadian Dollars) at the time you decide to sell it, the other party will have to pay you the difference, but if it is lower (say $1.00) you will have to pay them the difference. This is basically the same as trading the currency its self.

FOREX trading accounts will also allow you to purchase on leverage (borrow to make bigger purchases than the actual amount of cash you have). CFD accounts also let you do this.

As you can see, CFD accounts allow you to do almost everything that a standard FOREX account could do, but they also offer so much more. Like the ability to trade shares in almost any market, the ability to trade indices, commodities and many other different options.

So I ask you, why would you trade FOREX when you could trade CFDs?

While there is no definitive answer as to the optimum time frame for trading CFDs, the buzz around the world and market movements tell us that intraday has become the method of choice for CFD traders. While some argue that intraday trading is the way to go, sitting at your computer all day watching the ticks in the market and others preach intra-week trading taking longer term positions is the only way to make money, it seems the majority has drifted towards Day Trading.

Your general lifestyle and the amount of time you want to commit to trading will most likely determine which route you want to take. Day trading involves making trades where you hold the security between 2 days to 2 weeks. This style of trading still requires a decent amount of time monitoring the market and is generally recommended that you check your positions 1-2 times a day. Intraday trading however requires constantly monitoring while something like swing trading requires you only check your positions about once a week.

If day trading is going to be the trading style you adapt, contracts for difference are the ideal choice. With the power of leverage allowing you to take large positions, the transparency in price due to the perfect simulation of the underlying asset and the flexibility in product types make it an exemplary choice. Plus the lower commission levels make entering and exiting large volumes of positions much more affordable.

You should understand however that if you do decided to enter day trading there is still  going to be a significant amount of work related to the trading of CFDs and you must be available to monitor your positions daily and at specific times during the day. Particularly the opening and closing times of the market which is where you will see the biggest jumps in price and where you can make the highest profit.

A CFD trading strategy is like the instructions from an IKEA manual. Without the instructions, it is highly unlikely you are going to build a solid piece of furniture as you don’t know which pieces of the puzzle go where. Trading strategies can either be highly complex or fairly simple. They are built through a combination of experience, trading theory and general knowledge of the markets and economics.

There are a number of commonly used trading strategies that have been created through the knowledge, experience and trial and error of many successful traders. When building a trading strategy, it is important to look at who is currently successful in this space and emulate their movements. That being said, it is rare that you will be able to make all the same decisions as anyone else in the world, and there is no single trading strategy that is guaranteed to work. You need to bring in your own understanding, expertise and experience into your trading strategy to make it effective for you.

While there is no exact rules that you must follow when trading CFDs, using the common trading standards that have been developed by experts in field can be a great shortcut for covering some of the basics. These strategies have worked for others and should work for you which is why we recommend learning the basics first before setting out on your own to create your own strategies.

The underlying asset of a CFD can be a share, index, currency, commodity or other. There is no separate formula for the valuation of CFDs, the valuation techniques all come from analyzing the underlying asset its self.

So if a stock is trading at $20 per share, the CFD will also be trading at the same level. The stock ticks also happen in real time so its just like trading the stock (or whatever the underlying asset is). Even large purchases are represented in the price as the broker will usually open a position on the relative market impacting the price and thus rolling back to the CFD price.

To fully understand the workings of CFDs, check out the page CFDs Explained.

Phoebe Cates

Phoebe Cates, an actress gone investor started her first venture through a Madison Ave boutique store on the Upper East Side of Manhattan. While not a multi national monster, her business still turns a healthy profit and shows a little spark of an investor.

(image credit)

Helena Christensen

Helena Christensen, a Danish model also started a small boutique in New York. This time in the West Village. Bringing in some natural Danish fashion and a vintage feel, there is more to Helena than meets the eye.

(image credit)

Kate Moss

Ahh, the infamous Kate Moss. Another super model turned fashion mogul / designer. Kate in conjunction with English retailer Topshop launched a fashion line that was a huge hit. This lead on to another line in the summer wear space.

(image credit)

Gwen Stefani

The lead singer of No Doubt, then solo artist extraordinaire Gwen Stefani founded the clothing line L-A-M-B which included her own fashion and footwear sense and was sold through a number of retailers. She also followed up with a line of “Huckleberry Dolls”.

(image credit)

Lisa Rinna

Actress from Melrose Place, Days of Our Lives, Dancing with the Stars and Most Recently a short piece in Entourage founded a couple of small boutiques in California with her husband Harry Hamlin. Selling boutique fashion through retail and online, we expect this business to turn a decent profit.

(image credit)

Oprah Winfrey

We all know who Oprah is. She is undoubtedly the richest and most powerful TV celebrity. But did Oprah make all her money from her TV salary? $1b dollars? I don’t think so. Oprah is a savvy investor who has built up a huge media empire. She has stake in Harpo Entertainment Group, Oxygen Cable plus magazine and movie investments.

(image credit)

Christy Turlington

Former model, Christy Turlington went from the catwalks to the office with the launch of her yoga centric clothing and footwear line that we have all heard of by now Puma. With Puma continuing to be a strong brand in the sports clothing arena, she went on to start Nuala and Sundari – other companies in the health and beauty industry.

(image credit)

Jennifer Lopez

Jennifer Lopez is another all round celebrity high achiever. From singer, to actress to entrepreneur. Jennifer founded Sweetface Fashion with Andy Hilfiger (Tommy’s brother) and now has retail boutiques across the world.

(image credit)

Madonna

Another female celeb gone into the fashion line, Madonna teamed up with H&M and created M by Madonna. This retail line was very successful and was sold in 26 countries around the world.

(image credit)