Introduction to CFDs
Contracts for Differences ("CFDs") products were developed to allow customers to enjoy all the benefits of possessing a stock, index, ETF, forex or commodity position without having to physically own the underlying instrument itself. A customer enters into a contract for a CFD at the quoted price. The difference between that price and the price when the position is closed is settled in cash, giving rise to the name "Contract for Difference" or CFD.
Please note that by trading CFDs customers can lose all the funds deposited. Please be aware of the risks involved.
With CFDs customers can buy ("go long") and close the position later by selling. Alternatively customers can sell ("go short") and close the position later by buying. Selling at a higher/lower price than the purchase price yields a gain/loss accordingly.
CFDs have grown in popularity over the past few years and we believe it is increasingly becoming the preferred way to trade the financial markets.
CFDs work like this: instead of purchasing 1,000 Microsoft shares from a stockbroker, a customer could instead buy a 1,000 CFDs of Microsoft on the Plus500 Trading Platform. A $5 per share fall in the price of Microsoft would give the CFD customer a $5,000 loss or a $5 per share rise in the price of Microsoft would give the CFD customer a $5,000 profit , just as if he had purchased the actual shares that are traded on the Exchange.
Plus500 offer CFDs on popular financial instruments. Other benefits include no Exchange charges and no Stamp Duty. Many of the inefficiencies of trading the underlying shares on the Exchange are eliminated. The costs and delays of physical delivery of the shares, their registration and any holding or safe custody charges made by a broker are all avoided. The other major benefit of trading CFDs is that customers can trade on margin using leverage. CFD trading means customers can trade a portfolio of shares, indices or commodities without having to tie up large amounts of capital. Using the example above, a customer buying $50,000 worth of shares will only be asked for $5,000 initial margin for the equivalent CFD portfolio.
Any financial entitlements, such as dividends, are adjusted for in cash, directly to a CFD holder's account. However, any voting rights available to the holder of an equity share are not available to the holder of an equivalent CFD.
Trading at Plus500
Trading at Plus500 is straightforward and easy with no commissions or hidden fees. Plus500 is compensated for its services through the bid/ask spread.
The main lobby of the software contains the buy/sell prices of all the instruments available. When entering an order to buy an instrument, the advanced trading platform allows you to add a stop loss, profit limit or trailing stop to protect your position and profits.
The trading hours for each instrument can be found on the Trading Platform under the details link for that instrument.
Trading example:
You signed up and deposited $5,000 via Skrill.
- Balance: $5000. (Deposits - Withdraws + P&L of closed positions)
- P&L = $0. (Total profit and loss of all open positions including daily premiums)
- Available Balance: $5000. (Balance + P&L of open positions - Initial Margins)
- Equity: $5000. (Balance + P&L of open positions).
You think that Google shares will fall soon, and decide to go ‘Short’ on Google.
5:07pm - you click ‘Short’ beside the ‘Google’ stock in the main lobby, the sell price is $290.
Your criteria are:
Number of Shares (CFDs): 100
Close at profit rate: $280 (profit will be 100*$10=$1000)
Close at loss rate: $310 (loss will be 100*$20=$2000)
The total amount you sold short are: 100*$290 = $29,000.
The Initial Margin that is needed for the Google shares is 10%: $2900.
The Maintenance Margin that is needed to maintain Google's position is 5%: $1450.
Your position is now:
- Balance: $5000
- P&L = 0 (usually the spread of Google is 50 cents so you would have a P&L of -$50)
- Available Balance after you sold Google is: $2,100. ($5000 - 10%*$29,000 = $2,100)
- 'Equity': $5,000 ($5000 + $0)
9:05pm - Google climbs to $300.
- Balance: $5000
- P&L: -$1000 (100*$290 - 100*$300)
- Available Balance: $1100 ($5000 - 10%*$29,000 -$1000= $1100)
- Equity: $4000 ($5000 - $1000)
You decide to cut your losses and buy Google - you press 'Close Position'in the main lobby (near your open position).
9:05pm - your market buy executes at $300. You lost $1,000 on the trade.
- Balance: $4000
- P&L: 0 (no open positions)
- Available Balance: $4000
- Equity: $4000
About Plus500™
Plus500 is a multi-asset CFDs trading platform, with a wide coverage of exchanges which includes UK, US, Europe and Asia. Plus500 strives to give every trader the ability to easily and efficiently trade CFDs on many financial products around the globe which includes: Stocks, Indices, Commodities, Forex, ETFs and Options.
To provide our clients with the optimum trading platform, we have built strong execution relationships with many of the world’s largest international banks. These relationships offer the benefits of increased size of deals, better prices and superior execution which, in turn, we pass onto our clients.
Our group believes in:
Transparency – we make it clear to our clients exactly what they get and what they pay for. It’s what we expect from our providers, it’s what our clients get from us.
Professionalism – our product is designed with enhanced security ensuring safe and seamless trading. It’s what we expect from our providers, it’s what our clients get from us.
The Human Side - Plus500 is operated by a dynamic group of programmers. We have our ups and downs and successes and failures, just like you. Keep faith in yourself, don't change your behaviour and continue going forward. It’s what we expect from our providers, it’s what our clients get from us.
Plus500 affiliates are Brand Ambassadors for the Plus500 Trading Platform. Affiliates represent us and should conform to our policies, values and vision.
A reliable Trading Platform – When it comes to financial products, strength and reliability might be the first values to promote. Always remind customers that Plus500 is authorized and regulated by well-regarded financial regulators: Plus500UK LTD is authorised and regulated by the Financial Conduct Authority. Plus500 CY LTD is authorised and regulated by the Cyprus Securities and Exchange Commission. Plus500 AU LTD is regulated by Australian Securities and investments Commission. Plus500 LTD is also listed on the London Stock Exchange and follows best practice corporate governance.
Suitable for everyone – Plus500 is the most easy to use trading platform out there yet it includes advanced features attractive to experienced traders. CFDs are “complex financial products” so can only be marketed to people with previous experience of financial markets.
Diversification in trading– Plus500 traders can trade CFDs with over 2,000 instruments (Shares, Indices, Commodities, Forex, and ETFs) across over 20 different markets worldwide.
Localization – Let customers know and feel that Plus500 offers a full service in his language and currency (Plus500 is available in 50 markets and 31 different languages) regardless of his location.
Trade on the go – In today’s hectic daily routine, Plus500 traders know they can keep trading wherever they may be. Plus500 offers application platforms for a full range of mobiles and tablets especially for the busy trader.
Try it first – Plus500 offers a free (unlimited by time) demo version.
Remember that CFDs are a leveraged product and can result in the loss of your entire deposit. Trading CFDs may not be suitable for you. Please ensure you fully understand the risks involved.
