CFDs, or "Contracts for Difference", are an efficient means for trading stock shares, DIF clients can trade CFDs with 20% margin and zero commissions, utilizing state-of-the-art online dealing software. Traders can view prices and execute trades in real time.
The "CFD", or "Contract for Difference", was developed to allow clients to receive all the benefits of owning a stock without having to physically own the stock itself. For example, instead of purchasing 1,000 shares of Microsoft from a stock broker, a client could instead buy a CFD on Microsoft on the Dif Freedom trading platform. A $5 per share rise in the price of Microsoft would confer to the client a $5,000 profit, just as if he had purchased the actual shares that are traded on the exchange. A major difference is that there are no exchange fees and many of the inefficiencies of trading the underlying shares on the exchange are eliminated. DIF can therefore offer CFDs with zero commissions and very attractive margin requirements. CFDs have grown in popularity dramatically over the past few years, and we believe that this will increasingly be the preferred way to trade the financial markets.
The other major benefit of trading a CFD is the fact that the client can trade on margin. CFD trading means clients can trade a full portfolio of Shares, without using the full amount of capital. Using the example above, a client purchasing $50,000 worth of CFD Shares will only be asked for $10,000 margin.
As with Shares, CFD investors benefit from normal market movements. Clients' open positions are valued in real time, with every tick of the market. Profits or losses similarly are credited to or debited from the clients account equity in real time.
Unlike physically purchasing stocks, clients only have to deposit approximately 20% of the value of the Shares. So if you want to buy $50,000 worth of Shares, you only need to have $10,000 on deposit with DIF.
Short Selling CFDs
When short selling a CFD directly on an exchange (that we do not market-make), you will be affected by the rules for the stock market in that country. For example:
- For US CFDs, an up-tick rule applies where you can only short sell on an up-tick.
- For Australian CFDs, you may experience limitations on the amount of CFDs you can short trade in a single day due to limited borrowing availability in the underlying market.
When short selling CFDs, you can experience forced closure of a position if your CFDs get recalled. The risk is particularly high if the stock becomes hard to borrow due to take overs, dividends, rights offerings (and other merger and acquisition activities) or increased hedge fund selling of the stock.