Information Regarding Listed CFDs

If you are an investor you may be familiar with CFDs which are derivative that is quite popular amongst traders within many countries. The abbreviations stand for Contracts for Difference; two parties enter into an agreement which states that payment will be made by one of the parties on a future date. At that time the ‘payment’ amount will be the difference between current market prices of the decided upon asset and the market price of the asset at a future date multiplied by the amount of the asset agreed upon.

Most investors are familiar with Over the Counter (OTC) cfds; however another form is called the ‘Listed CFD’. Listed CFDs are conducted via a financial exchange such as the London Stock Exchange (LSE) or Australian Securities Exchange (ASX). This form is said to be more cost effective offer lower risk as well as more transparent prices.

Listed cfds are listed on the public market, and are available to be traded by the public via means of primary and a secondary basis. Because of this the listed CFD is totally different than that of the broker traded unlisted cfds. Prices are negotiated via the financial exchange and are being provided by the actual broker as opposed to being traded with the investors and the actual provider.

Another key factor which makes trading listed CFDs very popular is the fact that this derivative is listed on a financial exchange (LSE, ASX, etc), which means that the investor will not need to create specialized trading accounts.

Unlike unlisted contracts for difference trading the listed CFDs are ordered and purchased the exact way as that of shares, whereas with the unlisted product the trader will have to fill their account for any and all positions that become negative. Since these are traded like shares there are free guaranteed stop loss orders. This is a loss management factor that is crucial for many investors, as their liability is limited. There is also no actual margin calls with listed as opposed to that of the unlisted cfd.

Like any form of investing there is potential for severe capital loss. Although listed CFDs offer less risk because of lesser downside exposure than that of the unlisted contracts for difference, they still make use of leverage, and any derivative which makes use of margined trading is involved is highly risky and should not be undertaken by the beginner.

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