CFDs or Contracts For Difference have no fixed expiry date, giving you the freedom to close your position when you choose. With RFXT you open and close your CFD position at the guaranteed market price - there is no spread to worry about. While your position is open your account is debited or credited to reflect interest and dividend adjustments.
Among the main advantages of trading CFDs, you can note the following:
A CFD is an agreement between two parties to settle, at the close of the contract, the difference between the opening and closing prices of the contract, multiplied by the number of underlying shares specified in the contract.CFDs are traded in a similar way to ordinary shares. The prices quoted by many CFD providers is the same as the underlying market price and the you can trade in any quantity just as you would with an ordinary share, you will usually be charge a commission on the trade and the total value of the transaction is simply the number of CFDs bought or sold multiplied by the market price. However, there are some distinct differences from trading ordinary shares that have made them increasingly popular as an alternative instrument to speculate on the movements of shares or indices.
Traded on marginRather than pay the full value of a transaction you only need to pay a percentage when opening the position called Initial Margin. The key point is that margin allows leverage, so that you can access a larger amount of shares than you would be able to if buying or selling the shares themselves. The margin on all open positions must be maintained at the required level over and above any marked to market profits or losses in order keep the position open. If a position moves against you and reduces your cash balance so that you are below the required margin level on a particular trade, you will be subject to a “Margin Call” and will have to pay additional money into your account to keep the position open or you may be forced to close your position.Trade in rising or falling marketsCFDs allow you to trade LONG or SHORT. A Long Trade is where you BUY an asset with the expectation that it will rise, just as you would when buying a normal share. A Short Trade is where you SELL an asset that you don not own in the expectation that the price will fall and you can buy the asset back at a cheaper price. Shorting in the ordinary share market is almost impossible. With CFDs, however, you can go short as easily as you go long. Giving you the ability to profit even if a share price falls if you trade the right way.No Stamp DutyBecause with CFDs, you don’t actually physically buy the underlying shares, you don’t have to pay stamp duty. Saving 0.5% when compared to a traditional share deal.CommissionCommission is charged on CFDs just like on an ordinary share trade, the commission is calculated on the total position value not the margin paid.Overnight FinancingBecause CFDs are traded on margin if you hold a position open overnight it will be subject to a finance charge. Long CFD positions are charged interest if they are held overnight, Short CFD positions will be paid interest. The rate of interest charged or paid will vary between different brokers and is usually set at a % above or below the current LIBOR (London Inter Bank Offered Rate). The interest on position is calculated daily, by applying the applicable interest rate to the daily closing value of the position. The daily closing value is the number of shares multiplied by the closing price. Each day's interest calculation will be different unless there is no change at all in the share price.Trade Shares and IndicesCFDs allow you to take a view on shares and indices and some CFD providers also allow trading on currencies and sectors.Risk Management FacilitiesBecause of the higher risk nature of trading on margin, many CFD providers offer comprehensive Stop Loss and Limit Order Facilities so that Investors can manage their risk in fast moving markets
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