Benefits of CFDs

CFDs were traditionally only available to institutional investors. Now they are one of the world’s fastest growing ways to trade the financial markets. A CFD enables you to trade on a financial instrument such as a share or a commodity without having to physically own it. This means CFDs have a large number of benefits over traditional ways of trading such as buying and selling shares through a stockbroker.

Trade with Low Commissions

CMC Markets charge a low commission charge on equity instruments, currently the most competitive in the market. Other CFD instruments, such as indices, commodities and treasuries are currently commission free. Please check our Rates Schedule for current charges.

No Stamp Duty

Unlike traditional share trading CFDs incur no stamp duty on UK Shares.

Access Global Markets

CFDs allow you to trade on a whole host of global instruments all from one account. Trade on Shares, Indices, Commodities, Sectors and Treasuries 24 hours a day.

For a full listing of the range of markets that we offer, click here.

Margin Trading

CFDs are a leveraged product which means that you are only required to deposit a fraction of the overall value of the trade. Typically margins with CMC Markets vary between 1% and 10%. Margin means you can magnify the returns on your investment. However, it is important to remember that losses too will be magnified so margin trading is not necessarily for everyone.

Going long or short with CFDs

Markets go down as well as up. With CFDs you can potentially profit from falling markets because you are trading on the price movement of a financial instrument without physically owning it. This makes it as easy to sell an instrument as it is to buy. This is known as ‘going short’.

Example of going short:

1. ABC Corp is trading at 1599/1600 and you think the price is going to fall in value.

2. You decide to sell ABC corp CFDs at 1599.

3. You decide to trade 1000 shares. You sell 1000 CFDs at 1599 giving you a position size of £15990. 1000 x 1599 = £15990

4. Equity CFDs attract a commission charge of 8 basis points. A basis point is 1/100th of a percent. To determine how much commission you would pay, you multiply your position size by commission charge. In this example the charge is £12.79. £15990 x 0.08%=£12.79

5. Your margin requirement with CMC Markets for ABC Corp is 5% therefore £799.50 will be allocated from your account against this trade as initial margin. Remember if the share price moves against you, it is possible to lose more than this £799.50 initial margin.

6. Two days later you see that ABC Corp has fallen to 1578/1579p

7. Therefore you choose to buy CFDs in ABC Corp at 1579 and realise your profit. The commission charge of 8 basis points also applies to the closure of the trade, equaling £12.63

8. You sold at 1599 and bought at 1579 which means ABC Corp fell by 20 pence. 20 pence x 1000 CFDs = £200 revenue.

9. You held the CFD position for two days, and because you went short you were effectively loaning us money so you receive two nights financing charge. This is how you calculate the financing you will receive;
   £15990 (value of the position) x Libor - 3% (which in this instance = 2%) /365 (number of days in the year) x 2 (number of days position is held)
   = £1.75

10. Therefore you add the financing payment to the revenue, and deduct the commission charges and realise a profit of £176.33

However, if the market had risen you would have made a loss, for example:

1. ABC Corp is trading at 1599/1600p and you think the price is going to fall in value.

2. You decide to sell ABC corp CFDs at 1599

3. You decide to trade 1000 shares. You sell 1000 CFDs with the value of £15990.

4. Equity CFDs attract a commission charge of 8 basis points. A basis point is 1/100th of a percent. To determine how much commission you would pay, you multiply your position size by commission charge. In this example the charge is £12.79. £15990 x 0.08%=£12.79

5. Your margin requirement with CMC Markets for ABC Corp is 5% therefore £799.50 will be allocated from your account against this trade as initial margin. Remember if the share price moves against you, it is possible to lose more than this £799.50 initial margin.

6. Two days later you see that ABC Corp has risen to 1618/1619

7. Therefore you choose to buy CFDs at 1619 and realise your loss. The commission charge of 8 basis points also applies to the closure of the trade, equaling £12.95

8. You sold CFDs at 1599 and bought at 1619 which means ABC Corp rose by 20 pence. 20 x £10 = £200 loss.

9. You held the CFD position for two days, and because you went short you were effectively loaning us money so you receive two nights financing charge. This is how you calculate the financing you will receive;
   £15990 (value of the position) x Libor - 3% (which in this instance = 2%) /365 (number of days in the year) x 2 (number of days position is held)
   = £1.75

10. Therefore you deduct the financing payment and add the commission charges to the negative revenue and realise a loss of £223.99