Winspreads

What Are CFDs?

A Contract For Difference (CFD) is an agreement between two parties to settle, in cash, the difference between the opening and closing prices of a financial instrument. CFDs mimic the price performance of various underlying assets, without requiring you to physically own the instrument or to physically settle it.

CFDs are derivative products. This means that their prices are derived from the prices of other underlying financial instruments. When you buy or sell CFDs, you do not actually own any shares, foreign exchange, bullion, commodities or other underlying assets. Instead, you hold a contract with us to exchange the difference in price between where you enter the trade and where you exit the trade.

CFDs are traded on margin. This means that you can trade with only a percentage of the cost of the underlying financial instrument and leverage your position.

However, CFD trading carries above average risk and is not for everyone, so please ensure you understand the risks. You should be aware that it is possible to lose more money than your initial deposit and that you may be required to make further deposits at short notice. You should not engage in CFD trading unless you understand the nature of the transaction you are entering into, the risks involved and the true extent of your exposure to the risk of loss. Please see the Risk Warning section.

Pricing

The prices of CFDs are almost the same as the prices of the underlying instruments on which they are based and are usually quoted on a spot basis. As a result, CFD prices move in real-time to reflect the changes in price of the financial instruments on which they are based on the exchange they are quoted or in the inter-bank market.

For example:

The underlying instrument for a Microsoft CFD is one share of Microsoft (MSFT) stock. If Microsoft stock is trading at 18.01 /18.02 per share, then we may quote a price for Microsoft CFDs at or around this price. For example: 18.00 / 18.03

The Spread

The spread is the difference between the price at which you can buy a CFD and the price at which you can sell the CFD. It is sometimes referred to as the "bid / offer spread" or the "dealing spread".

The spread is the way in which market makers like us are compensated for creating a market in which you can trade CFDs. A narrow or small spread is cheaper to you. A wide or large spread is more expensive to you.

For example:

In the above Microsoft example, if we are quoting Microsoft at 18.00 / 18.03, the lower figure (18.00) is the sell price and the higher figure (18.03) is the buy price. This means that you can sell Microsoft at 18.00 and buy at 18.03*.

* Subject to quantity limits set according to current market depth and other conditions.

Spread sizes vary by instrument. Factors that influence the size of a spread are:

• the volatility of the financial instrument
• the liquidity of the financial instrument
• the amount of freely traded shares that exist for the relevant financial instrument

The size of the spread represents how much the market must move in your favour before you begin to make a trading profit. For example, if you buy 100 Microsoft CFDs at a 0.03 spread, your trade will begin at a US$3.00 loss.