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How CFDs can be used to fine tune your portfolio

Whilst CFD trading is not for everyone, for those who understand the risks and are comfortable investing, there are a number of advantages:

Hedging – the use of a CFD as an insurance policy to protect other investments in your portfolio, effectively insuring against price movements. For example, if you own a share that you suspect may fall in value but don’t want to sell it, you can buy a CFD short position that will gain in value as that share falls, therefore neutralising the effects.

Cash extraction – a way of getting exposure to an asset without having to stump up the whole amount. For example say you want £10,000 worth of exposure to a share. You invest £2,000 in a CFD with five times gearing. You have thereby ‘extracted’ £8,000 in cash.

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Speculation – a short-term trading strategy that takes advantage of the narrow spread between buying (offer) and selling (bid) prices and short term movements in the price of the underlying asset.

Selling short – traditional shares do not provide the flexibility to profit from all market conditions, however, if you believe the market will fall, short selling a CFD will generate potential for capital growth.

Tax advantages – because you do not take physical delivery of the financial instrument you are trading within the CFD account, you are not liable for stamp duty on the transaction.

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