Your capital is at risk
February 16, 2016
A CFD is a 'contract for difference' between you and your broker. You choose the shares, indices, currency pairs or raw materials you want to buy or shorten and your broker finances your transaction. So, the broker is your counter-party.
The CFD is a contract with which you receive the difference between the purchase rate and the selling rate. If the position does well, you make a profit. If it doesn't go well, you take the loss. The broker only finances the position, the risk is all on you.
Not only the position in itself creates an exposures to risks in the form of differences in rates, but the contract in itself is also a risk: you make an agreement with your broker, and it should preferably be a very reliable broker!
Some numbers:
Plus500 exist since 2008, they are quoted at the AIM in London and have a market capitalisation of 650 million euros. In 2014, Plus500 had a net profit of 102.5 million Euros and the capital amounts to over 100 million Euros. Among others, Plus500 are regulated by the Financial Conduct Authority (FCA) in England.
IG Group exist since 1974. IG are quoted at the FTSE 250 and are number 1 in the world for CFDs. IG have a net equity of over 460 million pounds, a market capitalisation of about 4 billion pounds and in 2014-2015 they reported a net profit of 132 million pounds. IG ares under the supervision of the FCA in England.
CFDs are a leveraged product. Make sure you understand all the risks involved.
