The term CFDs stands for Contracts for Difference. The name comes from the fact that when you trade CFDs, you do not actually trade the physical asset such as the shares or commodity, rather you enter in to an agreement to pay the difference between the value of the contract at the start (on opening the trade) and the value of the contract at the end (on closing the trade).
CFDs are derivatives, in that they are priced based on the underlying market price such as the currency pair or commodity for example. STO take the market spread and add a small spread to give you the final price on which you can trade. This 'spread' we add is the only fee we charge in the case of most of our products, and these spreads are some of the lowest you will find.
With STO you can trade CFDs on a wide range of financial instruments all from the one account. You can trade long or short on products such as commodities, currencies, indices, bonds and shares. By going short you can take advantage of falling markets, something that is generally not available with traditional trading methods.
When you trade CFDs, you trade on margin – that is you only need to lay down a small percentage of the value of the position as a deposit to place the trade. For example, with equities, you need to put up margin of 4% of the value of the trade – so if you were trading 1000 CFDs of a share worth €10 you need to put down €400 in margin against that position (1000 X €10 X 0.04).
With CFDs, you can hold a position from seconds, to months, depending on what your trading objectives are. Just remember that if you hold positions in spot contracts or equities you may need to pay overnight 'swap' or financing charges, so make sure you keep track of how much these costs are.*
One very important point to remember too with CFD trading is that as they are leveraged products, your losses can grow rapidly, and without effective risk management in place you could lose your entire deposit.
*We offer Islamic accounts where no Swap payments are made or charged on positions. Speak to our client services team about an Islamic account.
Risk Warning: Forex and CFDs are leveraged products that incur a high level of risk and it is possible that losses exceed your investment. Please ensure that you understand the risks involved and seek independent advice if necessary. Please read carefully our Risk Warning