Why Investors Choose to Trade CFDs Over Traditional Trading

LONDON, May 23, 2012 /PRNewswire/ –

In the following guide, find out not only why investors choose to trade the financial
markets using CFDs [http://www.cityindex.co.uk/cfd-trading ] over traditional trading but
also how you can start trading with only a small initial deposit.

What is CFD Trading?

A CFD (Contract for Difference) is an agreement between two parties to exchange the
difference between the opening and closing price of a contract.

As a derivatives product, investors can take a position on over 12,000 financial
instruments with a City Index CFD trading account
[http://www.cityindex.co.uk/cfd-trading/what-is-cfd-trading.aspx ].

CFD trading enables investors to potentially profit from a market’s movement
regardless of if it is rising or falling.

How do Investors Trade CFDs?

Commonly, investors use CFDs to trade on the future price movement
[http://www.cityindex.co.uk/cfd-trading/how-to-trade-cfds.aspx ] of the underlying
instrument on which their contract is based such as the FTSE 100 Index.

As mentioned above; they can profit from a market that is both rising and falling.

For example, if they expect a market to fall they sell (go short), allowing them to
profit from a falling price. Alternatively, if they expect the market to rise, they buy
(go long) – similarly allowing them to profit from a rising price.

However, if the market moves against their position – they can incur significant
losses; making managing risk imperative in their CFD trading strategy
[http://www.cityindex.co.uk/cfd-trading/how-to-manage-risks.aspx ].

In addition, investors use CFDs to hedge their portfolios; allowing them to offset any
potential loss in value of their physical investments.

CFD Trading vs. Traditional Trading

Investors commonly choose to trade CFDs over traditional forms of trading
[http://www.cityindex.co.uk/cfd-vs-standard-trading.aspx ] because of its key features,
such as:

        - Free from Stamp Duty*
        - Leverage Feature
        - Ability to Go Long and Short

The CFD leverage feature
[http://www.cityindex.co.uk/cfd-trading/what-is-cfd-leverage.aspx ] enables investors to
take a position for only a small initial deposit – a fraction of the total trade value
such as 10%.

CFD Leverage Example:

For example, say you wished to purchase 5,000 Barclays shares and its current share
value is 250p.

The leverage or ‘margin’ rate for Barclays when trading CFDs with City Index is
presently at 15%.

Therefore, you are required to pay 15% of the total trade value.

This means that you pay an initial deposit of GBP1425, i.e. 5,000 x 190p x 15%.

So essentially for an initial deposit of GBP1,425, you have gained exposure to a
GBP9,500 (5,000 x 190p) position in Barclays.

Why do Investors Trade CFDs with City Index?

Today more and more individual investors are discovering the benefits of derivatives,
and many of them are discovering them through a City Index CFD trading platform
[http://www.cityindex.co.uk/trading-platform/forex-android-mobile.aspx ].

As a group, they transact in excess of 1.5 million trades every month in over 50
countries; providing access to a wide range of instruments including margined foreign
exchange, CFDs and, in the UK, financial spread betting
[http://www.cityindex.co.uk/spread-betting ].

City Index constantly looks to improve the performance of their platforms and expand
their range of services.

As a result, their customers benefit from innovative trading tools with transparent
pricing, competitive spreads, and a high standard of customer support. Visit
http://www.cityindex.co.uk for details.

*CFD trading is exempt from UK stamp duty. However, tax laws are subject to change and
depend on individual circumstances. Please seek independent advice if necessary.

SOURCE City Index