Summary: Contracts for Differences (CFD) trading has become increasingly popular among UK investors looking for a flexible and beginner-friendly way to engage with the financial markets, as CFDs allow traders to speculate on the price movements of various assets without actually owning them. To trade CFDs, UK residents can register an account with the CFD trading broker Plus500.
Recommended Multi-asset Broker for Online CFD Trading
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Reliable & Regulated by CySEC (#250/14) - Plus500 Ltd is a FTSE 250 company listed on the London Stock Exchange
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Wide range of instruments - CFDs on stocks, crypto, forex, commodities, ETFs, and more
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Low cost investing - No commissions and tight spreads.
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Transparent pricing on overnight funding, currency conversion fees, guaranteed stop orders, and inactivity fees.
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Advanced platform - Top notch analytical tools, real-time quotes, fast order execution, secure withdrawals
About CFD trading
What are CFDs?
When engaging in CFD trading, investors enter into a contract with a broker and agree to exchange the difference in the price of the asset between the opening and closing of the trade. This approach usually allows investors to trade on margin. That is, to take larger positions with a smaller initial investment by technically borrowing the money from the broker at the moment of opening the trade. Naturally, leverage also means that potential losses can be significantly higher than the sum the investor is initially handling. Consequently, risk management is essential.
The spread is another key factor in CFD trading. Essentially, it refers to the difference between the buying and the selling price of an asset. Brokers typically make their profit from the spread, so lower spreads are generally more attractive to traders as they minimize transaction costs.
Where to buy/sell CFDs In the UK
There are numerous CFD trading platforms that cater to investors’ needs in the UK, so it’s important that you thoroughly research and compare them before choosing one.
Our go-to broker for CFD trading is Plus500, a regulated trading platform that offers a wide range of CFDs, including stocks, Forex, and cryptocurrencies. Plus500 is regulated by the Financial Conduct Authority (FCA) in the UK, which ensures a secure trading environment.
The Plus500 platform also comes with features such as:
- Free demo accounts;
- Multi-asset Contracts for Differences (CFDs) on over 2,000 financial instruments, including stocks, commodities, Forex pairs, and cryptocurrencies;
- Mobile app for convenient on-the-go investing;
- Convenient deposit options including PayPal, Visa, and Mastercard;
- Free withdrawals.
Recommended Multi-asset Broker for Online CFD Trading
-
Reliable & Regulated by CySEC (#250/14) - Plus500 Ltd is a FTSE 250 company listed on the London Stock Exchange
-
Wide range of instruments - CFDs on stocks, crypto, forex, commodities, ETFs, and more
-
Low cost investing - No commissions and tight spreads.
-
Transparent pricing on overnight funding, currency conversion fees, guaranteed stop orders, and inactivity fees.
-
Advanced platform - Top notch analytical tools, real-time quotes, fast order execution, secure withdrawals
Understanding CFD trading in the UK
Before investing in CFDs, it is crucial to grasp the intricacies and fundamental principles governing the market, acquaint yourself with the diverse array of available assets, and find a reliable broker, all of which will empower you to make well-informed choices and seize the opportunities presented by the UK CFD market.
CFD trading regulations in the UK
CFD trading in the United Kingdom is controlled by the Financial Conduct Authority (FCA), which combats fraudulent activities by implementing various regulatory policies and measures. Those include:
- Imposing leverage restrictions;
- Closing customer positions when their available funds fall to 50% of the required margin;
- Implementing negative balance protection;
- Banning any ads encouraging excessive trading;
- Etc.
Commonly traded CFDs in the UK
Some of the most commonly traded CFDs in the UK include:
- Stocks: CFD trading allows traders to speculate on the price movements of individual stocks, such as those listed on The Financial Times Stock Exchange (FTSE) 100 or other major indices around the world;
- Indices: Instead of focusing on individual stocks, traders can choose to trade on the overall direction of various indices that track the performance of a group of stocks, such as the S&P 500 index;
- Commodities: CFD trading enables exposure to the price movements of physical commodities, including popular ones such as gold, oil, and silver;
- Forex: Traders can speculate on the exchange rate fluctuations between global currencies in the foreign exchange market, such as the GBP/USD pair;
- Funds: Some CFD brokers also offer trading on the price performance of specific funds, providing another option for diversified exposure to the financial markets.
How to trade CFDs in the UK safely
Trading CFDs in the UK can be a profitable venture if done safely and with the right knowledge. To ensure safe trading, make sure you familiarize yourself with the most common investing mistakes and follow these key principles:
- Practice risk management: Setting limits on your trading positions and employing the use of stop-loss orders to protect your investments is a good way to minimize risks. Stop-loss orders, for example, automatically close a trade when the price of your desired asset reaches a predetermined level;
- Take the time to come up with a bulletproof trading strategy: When researching your investment options, make sure you rely on solid fundamental, technical, and sentiment analysis. Technical analysis, for example, is the study of past market data, including pricing charts and trading volumes, with the goal of identifying patterns that can help determine future price movements. This kind of approach is much more profitable than investing blindly by following hype and letting your emotions dictate your choices;
- Regularly monitoring your positions: Being aware of how your investment is performing allows you to identify any changes in the market and adjust your strategy accordingly. It is also wise to stay up-to-date with the latest market news and insights;
- Diversify: Relying on a single investment or asset class to carry you to success is not the most prudent decision;
- Use only regulated brokers: Look for reliable, regulated, and user-friendly brokers that can assist you in your trading journey. In addition, look for competitive spreads, low fees, and additional trading tools to enhance your trading experience.
Pros and cons of trading CFDs
Pros
- Leverage: CFDs offer traders the advantage of higher leverage compared to traditional trading methods;
- Easy market access: Many CFD brokers provide access to a wide array of global markets, allowing investors to access a wide array of assets;
- No day-trading requirements: Some markets impose capital minimums or limit the number of day days. CFD trading is not subject to such restrictions;
- Diverse opportunities: CFD brokers offer a diverse range of financial instruments, including shares, indices, Forex, cryptocurrencies, and commodities.
Cons
- Leverage risks: If a trader cannot cover losses due to declining asset values, the provider may close the position, and the trader will be responsible for covering the loss, regardless of subsequent developments in the underlying asset;
- Spread costs: Traders in the CFD market pay spreads on both entry and exit, which can erode profits from small price movements.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about CFD trading UK
Is CFD trading legal in the UK?
Yes, trading CFDs is completely legal in the UK.
Where to trade CFDs in the UK?
UK residents can trade CFDs on online CFD trading platforms such as Plus500.
Do I have to pay taxes on CFDs in the UK?
CFD traders in the UK are not subject to stamp duty. However, if you make a profit from CFD transactions, you will be required to pay Capital Gains Tax (CGT).
What is the difference between CFD trading and investing?
Both investing and trading CFDs allow you to participate in the financial market and make a profit. The key distinction lies in asset ownership. That is, investing grants ownership of the financial instrument (e.g., company shares). On the other hand, CFD trading involves speculating on price movements without owning the underlying asset.
Recommended Multi-asset Broker for Online CFD Trading
-
Reliable & Regulated by CySEC (#250/14) - Plus500 Ltd is a FTSE 250 company listed on the London Stock Exchange
-
Wide range of instruments - CFDs on stocks, crypto, forex, commodities, ETFs, and more
-
Low cost investing - No commissions and tight spreads.
-
Transparent pricing on overnight funding, currency conversion fees, guaranteed stop orders, and inactivity fees.
-
Advanced platform - Top notch analytical tools, real-time quotes, fast order execution, secure withdrawals
