(CFDs) Contracts for Difference

TD Waterhouse CFDs provides active investors with an alternative method of trading shares without having to pay the full price of owning the stock. CFDs (Contracts for Difference) can be traded 'long' or 'short' to speculate on either rising or falling markets.

Learn more about CFD trading at our tailored website.

What is a CFD?

A CFD is a contract for difference. The contract is an agreement between a broker and a trader to exchange the difference between the share price at the opening and the share price at the closing of a particular trade, so resulting in either a profit or loss.

Instead of paying the full value of the shares you pay a margin, such as 5% or 10% of the actual share value, as a deposit. This means you can trade in larger amounts of shares than if purchasing the actual shares.

There is no fixed expiry date for a CFD trade, the trader closes their position when they wish to either collect their profits or cut their losses.

With CFD Trading you receive many of the benefits of share ownership such as dividends and price performance but you don't actually own the shares.

A CFD is a derivative product. A derivative is a financial product whose value is derived from the value of an underlying security, index, commodity or rate. It is a financial contract between a trader and a provider to exchange future cash flows.

Who is CFD Trading for?

CFDs are suitable for experience investors who understand the concept of gearing and the effect this can have on returns.

What does CFD Trading cost?

• CFD trades incur commissions depending on the instrument purchased. Read full details of our charging structures.
• CFDs are not charged stamp duty as no shares are actually being bought.*
• CFDs are liable for capital gains tax, charged on the income earned from closed contracts. However, losses can also be written off against capital gains tax.*

* Tax laws may change.

CFD Trading

CFD Trading allows you to make profits even when markets or prices are falling. CFDs can be traded in 2 ways:

Going Long

To buy shares that you expect to rise in value, so as to sell them at a later date to make a profit, you would open a 'long' CFD position.

Going Short

You would open a 'short' CFD position to trade a share that you expect to fall in value, so as to buy them later at a cheaper price and make a profit.

The difference between the opening and closing prices for long and short positions would be counted as profit should the price rise or fall as you so predicted.

CFD trading carries high risk, it is possible to quickly lose more money than your initial deposit and you may be required to make further deposits at short notice. CFD trading is not for everyone so please ensure you understand the risks.

TD Waterhouse CFDs is a trading name of City Index Limited (CI), who is a provider of contracts for difference (CFD) trading and whose head and registered office is Moorgate Hall, 155 Moorgate, London, EC2M 6XB. For the purposes of CFD any contract is between you and CI and all dealing, administration and settlement is carried out by them and TD Waterhouse Investor Services (Europe) Limited are not responsible for any of the functions they perform. Your account is held with City Index Limited (CI), which is authorised and regulated by The Financial Services Authority (FSA Registered Number: 113942).