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A contract for difference (CFD) is a derivative: its price is based on the underlying market price of an asset, such as a share. When you trade CFDs you trade on the change in an asset’s value, without ever owning that asset.
SCH Advisors offers an execution only CFD service for clients, as well as providing a range of add-on services. This includes up to the minute market information and research, technical analysis and other tools to assist you in your day to day trading strategies. We have relationships with a range of providers and resources to suit each individual investor’s requirement, from a basic CFD account to execute your own ideas, right through to market maker execution and using your CFD account for IPOs and secondary placings.
We understand that everyone is different and suggest that an initial conversation with us to discuss the different options available is the best way to start. If you would like to have a conversation with one of SCH Advisors’ experienced brokers, please complete the below and a member of the team will be in touch shortly.
The Basics of Contracts for Difference:
CFD’s allow an investor to trade a greater number of instruments globally through the use of margin as opposed to buying in cash, including:
- International stocks
- Global indices based
- Commodities, FX and bonds
- CFDs on Futures and Options
The benefits to trading using CFDs include:
- No Stamp Duty to pay.
- *The use of margin to trade stocks.
- The ability to trade on rising and falling markets through short selling, for price discovery in itself or to hedge an existing share portfolio.
Let’s look at a CFD example trade for Prudential on a typical CFD account that has £20,000 of funds.
You believe that UK stocks are cheap ahead of the Brexit decision and Prudential stands out as on good technical support with buying volume below 1300p:
A £20,000 long position is bought in Prudential at 1270p.
Prudential is 5% margin, so 5% of £20,000 (£1000) of margin from your account is used as a deposit.
In this example, Prudential moves higher by 10% to 1395p and subsequently closed.
The profit is 10% of the £20,000, so you realise £2000 before costs. 10% profits on the total account.
Clearly a small amount of funds are needed to gain this exposure, and it is possible (though very risky) to buy much larger amounts of this stock with funds on the account as margin. It is important to remember that while this can lead to significant gains on your account, losses are also magnified.
Let’s look at a losing example on the same £20,000 account:
You look at shorting Lloyd’s at 69p as technically the RSI is overbought above 70 and price is on trend-line resistance in the 69p area.
A £20,000 short position is executed in Lloyd’s bank at 69p.
Lloyd’s is also a 5% margin stock, so 5% of £20,000 (£1000) of margin from your account is used as a deposit.
This time, Lloyd’s moves higher against your view by 6% to 73.14p and subsequently closed when the stop loss is hit.
The loss is 6% of the £20,000, so you lose £1200 before costs.
In this example you have entered an automated stop loss – if this had not been entered and Lloyd’s continued to move higher then losses would continue to mount on the leveraged exposure.
Why Trade Contracts For Difference with SCH?
Experience of SCH Advisors’ brokers
CFD clients have access to the same level of experience and expertise with SCH Advisors as clients who deal in traditional stocks and shares. We believe that CFDs can be a useful tool for experienced investors for hedging an existing portfolio – taking advantage of the lower costs associated with CFD’s. Clients have a direct phone line to our dealing desk to execute trades on their behalf and assist elsewhere with their account at any time.
Direct market access
If you prefer to execute your own trading ideas, we can provide you with your own Level 2 dealing platform, enabling you to execute trades quicker using Direct Market Access. If you would prefer to speak to your broker, you can call in and they will be able to facilitate trade execution.
Research and Tools
SCH Advisors has access to a significant level of institutional research that, as a client, you will be able to gain access to. This ranges from broker and bank research to technical analysis and modelling tools. We can also set you up with daily research notes and an optional squawk service if required. If you require information on a specific stock or sector, we can source the most recent note available.
Trading tools include Trading Central and Autochartist for structuring trading strategies and advanced charting methods. This includes the ability to automate trading systems. These are available free of charge on request.