Long vs short
You don’t have to use a CFD to mimic a standard trade – you can also open a CFD position that will increase in value as the underlying market decreases in price. This is referred to as selling or going short, as opposed to buying or going long.
If you think Apple shares are going to fall in price, for example, you could sell a share CFD in the company. You’ll still exchange the difference in price between when your position is opened and when it is closed, but will earn a profit if the shares drop in price and a loss if they increase in price.
With both long and short trades, profits and losses will be realised once the position is closed.
Why do traders use CFDs?
Beyond the ability to go short and make use of leverage, there are several key reasons why traders use CFDs:
- You don’t have to pay stamp duty. You can also offset losses against future profits as a tax deduction1
- You can access thousands of available markets. A CFD can be used to trade a huge range of markets, including markets that are exclusive to derivatives, like interest rates and stock indices
- All on a single platform. Instead of having to trade via a stock broker, forex provider and a futures exchange, you can access all your markets on one platform
- You can trade when the underlying market is closed. If you need to close a position overnight you often can do thanks to 24-hour trading, and certain key markets are tradable over the weekend with Sunday trading