Listed Contract for Difference (CFD)

What are Listed CFDs?

A Listed CFD, or "Listed Contract for Difference", is essentially an agreement between a broker and a trader to exchange the difference between an opening, and closing, share price.

A Listed CFD, as the name suggests, is listed on the London Stock Exchange so pricing is completely transparent and investors are able to trade Listed CFDs at any time during normal market hours. An investor can open a position in a share, index, etc., for a smaller initial margin than would be necessary to own the stock outright, so the potential for larger percentage profits, or losses, is provided.

Listed CFD Features, Benefits & Considerations

Investment in a Listed CFD involves buying an existing, profitable CFD position, which has a notional, or theoretical, "entry level", at which the contract was created. The amount that an investor pays initially depends on the current share price, in relation to the entry level. If an investor takes a "bullish" view of the market – that is, he, or she, expects the shares purchased to rise in value so that they can be sold for a profit at a later date – he, or she, can open a "long" position, with an entry level set well below the current share price. Conversely if he, or she, expects the value of shares to fall – that is a "bear" market – so that they can be bought back at a lower price in the future, he, or she, can open a "short" position at an entry level well below the current share price.

One of the advantages of a Listed CFD is that it provides full exposure to the movements of underlying assets at a fraction of the cost – typically between 5% and 15% – of direct investment in the assets themselves; each point movement in shares, etc. is reflected by a point movement in a Listed CFD. Another, of course, is that a Listed CFD offers strictly limited liability; an investor cannot, ever, lose more than his, or her, initial margin payment, regardless of how far the market moves adversely.

The guaranteed stop-loss limit built into every Listed CFD means that losses can only occur up to that limit after which the position is closed, and the residual value of the contract, if any, is repaid to the holder. This is in contrast to a standard CFD, which can result in losses far greater than the initial margin payment if the market moves in the wrong direction. In addition, all charges and fees for a Listed CFD are included in one single price, rather than being added daily, or weekly, as is the case with a standard CFD. This allows the true cost of trades to be calculated easily. A Listed CFD can, nevertheless, result in a complete loss of the initial amount invested, so should be considered a high risk investment which may not be suitable for everyone.

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