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Advantages of CFDs

Advantages of CFDs

Not sure if you want to trade CFD's? Let's look at some of the advantages.

Tax efficient

Unlike share trading where stamp duty is applied to all transactions, CFDS are not subject to this taxation. Because you never own the underlying share, you in effect never own an asset to which stamp duty can be applied. Capital gains tax is applied to CFDs but note that any losses sustained on a CFD trade can be offset against your CGT submission.

Leverage

CFDs trade off a margin factor that requires you to deposit a fraction of the amount it would cost to buy the underlying shares. So whilst share trading requires you to invest 100% of the cost of the shares, a CFD trade may only require say a 5% deposit. This means that a 10% gain in the value of the underlying shares is equivalent to a 200% gain on your CFD deposit. Clearly there is also the downside risk and losses can be sustained on poor trades. However it is this leverage functionality that makes CFD trading highly sought after.

Short selling

A CFD trader can make money in both a rising and falling market. If you believe a share price will go down then you can open a sell trade in the market. When you close out a sell trade your gains are the difference between the price you opened the trade and the price the market fell to when closing the trade.

Low cost

Share trading is subject to execution fees and, as mentioned above, stamp duty. With CFDs the costs are in the spread between the buy and sell price. Competition amongst CFD brokers means the spreads remain very tight. Some brokers charge a commission fee for CFD trading but at 3DMarkets we do not.

Instant realisation of profits

When selling out a Share investment there is a settlement period for the trade to clear before funds are returned to your account. This period is usually 2-3 days. With CFD trading any profits or losses are instantly realised in your account as soon as the trade is closed. These profits can then be immediately transferred out of your account if you wish.

Global markets

3DMarkets offer CFDs in a whole range of global markets. Indices, commodities, shares, ETFs and more are available for trading through a single easy to use trading solution. Additionally our CFD platform also enables you to place Stop and Limit orders to automatically restrict losses or take profits based on a price trigger point when you are not around.

If you are still not sure that CFD trading is for you then take a look at our other guides or try our demo account where you can test out trading for yourself in a risk free environment before investing your own money.

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3DMarkets Trading is a trading name of Spread Co Limited, who are authorised and regulated by the Financial Conduct Authority. FCA Registration Number 446677