Contracts for Difference FAQs

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FAQs Index : CFD Trading Basics : Short Selling : Dangers and Pitfalls : More CFD Questions Answered

Advanced Trading Techniques : How Hedge Funds and Fund Managers use CFDs

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Q.	Where did CFDs come from, and why the weird name?
Q.	What is a Contract for Difference?
Q.	Show me an example...
Q.	Who trades CFDs?
Q.	What is a contract value?
Q.	Why trade CFDs instead of stocks?
Q.	If the CFD price moves like the stock price, why would you trade a CFD on IBM instead of just trading the IBM stock itself?
Q.	What are the costs of trading CFDs?
Q.	How does the provider make money?
Q.	Please provide me with a quick example comparison of buying a share versus cfds in terms of costs?
Q.	What is the catch?
Q.	Do investors tend to trade in CFDs as an addition to their investment arsenal as opposed to buying more shares?
Q.	What are the main advantages of CFDs from an investor perspective?
Q.	Why is it so popular among investors?
Q.	What is short-selling?
Q.	What is 'naked' short-selling?
Q.	What short selling instruments are available?
Q.	How popular is short selling in practice?
Q.	Selling something you don't own... How does that actually work?
Q.	But you should have to buy something before you earn the privilege of being allowed to sell it!
Q.	Is short selling legal?
Q.	Is there any advantage of shorting CFDs as opposed to shorting stocks?
Q.	How long does a short trade last for?
Q.	Personally I do not like shorting. The idea that you can sell something you don't own is somehow unethical and morally disturbing...
Q.	Is short selling evil?
Q.	The big difference is that excessive shorting 'can' lead to the collapse of a bank which affects its customers, their businesses, and the wider economy...
Q.	Is making money the sole purpose of short-selling?
Q.	Are there any famous examples of short-selling?
Q.	$1 billion - that sounds good. But are there any risks?
Q.	Why the recent banking crisis?
Q.	What is the uptick rule and can it really help soften a market crash?
Q.	Can short-selling destroy a company on its own?
Q.	Why are hedge funds and shorters being blamed?
Q.	What has been the hedge funds reaction?
Q.	What is Warren Buffet's take on short selling?
Q.	Will disclosure of short positions make any difference?
Q.	Will the ban on short-selling financial stocks work?
Q.	What are the disadvantages of trading CFDs?
Q.	What are the most obvious pitfalls that traders need to be aware of?
Q.	What are best: spread bets or contracts for difference?
Q.	Spread bets and cfds are very similar yet most real traders say spread betting isn’t investing, it’s just a form of gambling - why is that?
Q.	How are CFDs priced?
Q.	So does the broker pay me money on my position if I go short of an asset instead of long?
Q.	What is gearing (or leverage)?
Q.	Do all CFDs have the same level of leverage, what is the leverage?
Q.	What is NTR?
Q.	What is the difference between stop losses and guaranteed stop losses?
Q.	What margin is required for a CFD?
Q.	How is interest charged or credited?
Q.	Can you sell a contract for difference?
Q.	How long does a CFD last for?
Q.	During the short period does the LENDER actually own less shares?
Q.	What can you do to prevent your shares holdings from being shorted?
Q.	What happens if a company pays a dividend?
Q.	Does a holder of a long CFD receive a dividend and imputation credits?
Q.	Does a holder of a short CFD make a cash payment to the value of the dividend and imputation credits?
Q.	What happens in a stock split?
Q.	What stocks are available?
Q.	Can you take or make delivery of a stock by trading a CFD?
Q.	Do CFDs give you the right to convert your holdings into actual shares?
Q.	If anyone holds shares via CFDs does one have to notify the public through an RNS if their holding goes over...
Q.	Yes, I understand that but shares as you know give you entitlement in the say of things...
Q.	Are there any risks with trading CFDs?
Q.	What about using Guaranteed Stop Losses?
Q.	I've got 100:1 leverage with my CFD broker (and they offer even higher! 200:1 crazy!!!)
Q.	How do I fund my CFDs account?
Q.	What is direct market access and how does trading inside the spread works?
Q.	Is it a good idea to steer clear of market makers?
Q.	How safe are client funds?
Q.	The small print on CFD/spread betting accounts worries me...
Q.	Why do brokers reserve the right to close out a short position or change the margin requirements?
Q.	Maybe this is why most of the providers insist on only taking on 'intermediate' customers?
Q.	Do you have any general advice in dealing with providers?
Q.	Does my broker hedge all client CFD positions as opposed to spread betting?
Q.	Comparing Listed CFDs other derivatives and normal contracts for difference what outweighs the other, risk out of the way?
Q.	A CFD seems to be very much like a single stock futures contract, what's the difference?
Q.	Are CFDs better to trade than options? Should I trade CFDs instead of options?
Q.	I’ve heard about a strategy where one trades CFDs using puts?
Q.	How do CFDs compare to Warrants?
Q.	Is it ok for a novice to invest in CFDs?
Q.	I am very new to the CFD trading scene and am finding it difficult to pin point a trading strategy that I may be able to adopt as a full time venture...
Q.	Are there any funds which use CFDS in their investment portfolio?

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