James Hipwell

Welcome to our introduction to the world of contracts for difference. Here, we'll take you through the key terms and create the building blocks for you to begin trading.

There are three main considerations when opening a position with a CFD.

Some financial commentators and regulators have expressed concern about the way that CFDs are marketed at new and inexperienced traders by the CFD providers.

According to research the majority (said to be around 80%) of retail CFD traders are not comfortable being short of the market.

All the big CFD providers offer thousands of markets, including indices, forex, commodities and more. Some markets such as gold or oil are 'expiry transactions' which means they have a fixed expiry date, so if you have not closed such a position by its expiry date, it will close automatically.

A share CFD is an undated contract that captures every aspect of share trading. You trade at the underlying market price, but you don't actually own the shares and do not have to put up the full contract value.

Share CFD trading is very similar to normal share dealing in two respects. You deal at the cash price of the share, and pay a commission which is calculated as a percentage of the value of the transaction.

In the early 1990s a young banker called Brian Keelan of UBS Warburg hit upon the idea of bankrolling the cost of a bid by his client, Trafalgar House, for Northern Electric, by betting on a rise in utility share prices in the sector as a whole.