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GermanyBenefits & Risks
CFDs appeal to a wide variety of individuals who want to take advantage of the versatility and great value that CFD trading can offer. You do not need to be an experienced investor to bet CFDs, but you do need to research the products that you wish to bet and be aware of the risks associated with CFDs.
The Benefits
The following reasons explain why CFDs might appeal to you:
No Stamp Duty**
trading shares using CFDs is exempt from UK stamp duty.
Bull or Bear
One of the most obvious advantages of CFD trading is the opportunity to short (or sell) the market. You can therefore profit from both rising and falling markets.
Hedging
Many investors use CFDs to hedge their existing share portfolio. For example, if you have some shares which are decreasing in value in the short-term, you could “Sell” the value of the share with Capital CFDs and possibly make a profit to counter-balance the decreasing value of your shares.
A Contract Size of Your Choice
Capital CFDs also allows you to bet in sizes smaller than those usually available in the underlying market.
Bet on Margin
CFDs are margined trading products, which means you need only deposit a small percentage of the full value of your bet leaving your excess capital to continue working hard elsewhere. For example, a 100 CFD bet on a share is the equivalent of buying (or selling) 100 real shares. On most shares our minimum Initial Margin Requirement (deposit) is 3-5% of the underlying value of the shares which means that you can make a bet in a share with as little as 1/30th of the money required to buy the actual real shares from a stock broker.
No Commission or Fees
As Capital CFDs is not a stockbroker, we do not charge commission or fees. Our dealing costs are built into to the spreads that we apply to the underlying market prices. Don’t forget, that UK residents benefit further because you do not have to pay stamp duty tax** when you purchase a share.
Alternative to Traditional Stock Broking
The table below illustrates how a share investment held for 30 days might compare to if it was done as a CFD bet .
| Traditional Stock Broker | |
|---|---|
| Buy 10,000 shares @ | 140.0p |
| Cash outlay | (£14,000) |
| Sell 10,000 shares @ | 200p |
| Gross profit | £6,000 |
| Stamp duty | (£70) |
| Commission (buy/sell) | (£25.50) |
| Tax @ 18% | (£1,080) |
| Overnight financing | £0 |
| Net Profit | £4824.5 |
| Return on Capital Employed | 34% |
| ROCE working: 4824.5 ÷ 14000 x 100% | |
| Capital CFDs | |
|---|---|
| Buy £10,000 CFDs @ | 140.1p |
| Cash outlay* | (£1,401) |
| Sell £10,000 CFDs @ | 199.9p |
| Gross profit | £5,980 |
| Stamp duty** | £0 |
| Commission (buy/sell) | £0 |
| Tax @ 18% | (£1,076.4) |
| Overnight financing | (£30) |
| Net Profit | £4873.6 |
| Return on Capital Employed | 347% |
| ROCE working: 4873.6 ÷ 1401 x 100% | |
* This is using the “Max CGSL” for most shares which is 10% (the “Min IMR” is 3%). NB you can lose more than this deposit.
** Tax laws can change.
• Remember that the risk is still the same for either scenario. For example, if the company you were trading on was to go bust and its share price plummeted to 0p overnight, then you would still be liable to a £14,010 loss with Capital CFDs and not just the 10% deposit of £1,401. The other benefit of doing this bet as a CFD is that you’ve freed up almost £12,600 of spare capital to use elsewhere or remain in the bank earning interest (which could go some way to paying for the overnight financing).
• As with all CFDs you do not own or owe the underlying asset. So, if you open a buy CFD on a share you will not have any voting rights.
Regulated Industry
CFDs are tightly regulated by the Financial Services Authority (FSA). Our regulation by the FSA means that we have to abide by strict rules and regulations which ultimately mean you have the comfort of knowing that you are working with a reputable organisation.
The Risks
Whilst CFDs offer many benefits, it is important to note that it carries a high level of risk to your capital, so you should only bet with money you can afford to lose. Capital CFDs has a policy of attempting to limit client losses by applying an automatic stop loss to each bet you make, but (unless you specifically opt for your Stop to be guaranteed) these stops are not guaranteed. So in the event of a market gapping you may not be filled at the level you requested which means you may lose more than your initial deposit. Click here for more details about Guaranteed Stop Orders.
CFD trading carries a high level of risk to your capital and you can lose more than your initial deposit. CFDs may not be suitable for all investors so seek independent advice. View full risk warning.
