Sterling Savvy

UK’s most-asked questions about CFD trading answered

Trade Nation interview about CFD trading

Today we’re chatting with Andrew Merry who is the Chief Commercial Officer at Trade Nation.

He has over 25 years of experience in the sector.

Welcome, Andrew, we’re so glad to have you!

I’ve dug into a bit of Google search data before this interview and gathered the most asked questions about CFD trading by the UK public.

These interviews aim to have an industry expert explain some of these often confusing financial concepts.

Will: Let’s start with the basics. Many of Sterling Savvy’s readers are new to trading. Maybe they’ve heard about stocks and shares, ISAs, and pensions, but a Contract for Difference (CFD), what’s that?

What is a CFD (Contract for Difference)?

Andy: A Contract for Difference is a financial instrument that enables you to speculate on the price movement of an underlying asset on margin which means you don’t need as much capital to gain the same exposure as you would need to own the underlying asset. It is a leveraged trading instrument.    

Will: To add to what they are, search data suggests people want to know a bit about how they work and make money.

How does a CFD work? How do CFDs make money?

Andy: A CFD tracks the price of the underlying asset. If you think the price of the underlying asset is going to rise you would buy the CFD, if you think it is going to fall you would sell the CFD. You decide how much exposure you want per point movement of the underlying asset and nominate the number of CFDs you would like to trade. Once you have opened a trade you stand to profit per point movement if the price of the underlying asset moves in your favour but stand to make a loss per point movement if the price goes against you. 

Will: OK, great. According to search data (not necessarily the most accurate), around 1,500 people per month ask the next one…

What is CFD trading?

Andy: CFD Trading is a means by which you can speculate on the financial markets at a fraction of the cost of owning the underlying asset whilst having the same economic benefits of owning the underlying asset.  

Will: Interesting. It appears another highly searched question is about how it compares to other types of trading.

What is the difference between CFD trading and spread betting?

Andy: Good question. The main difference is the currency in which each instrument is traded. CFD trading is based on the currency of the underlying asset. For instance, if you were trading the Dow Jones Index you would be trading in USD but if you were trading the FTSE 100 Index you would be trading in GBP. Spread betting is based on the currency of your trading account.

For instance, if your trading account was in GBP and you traded the Dow Jones Index you would still be trading in GBP. In addition, CFDs are traded in contracts (for instance, 1 CFD is a contract) and these differ depending on the market and your provider. With spread bets, you trade in pounds, dollars, euros, pence or cents per point. This makes it easy to calculate your profits and losses. For all intents and purposes, this difference makes spread betting a simpler instrument to understand than CFDs. 

Will: I see. It seems people are also looking to find out its distinction from other assets too.

What is the difference between CFDs vs stocks, forex, and commodities?

Andy: CFDs are leveraged products. They enable you to trade on the price of Stocks and Forex and Commodities, with the same economic exposure, but without having to put up the same capital as you would need to buy and sell Stocks or trade physical Forex or physical Commodities. 

Will: Great Andy. Off the back of this, now is probably a good time to answer one of the most searched questions in the UK regarding CFDs…

How to trade CFDs?

Andy: Through a broker and there are plenty of options out there! CFDs became a mainstream trading instrument in the early 2000s when only a handful of brokers offered the product. Today there are c.1500 brokers around the world offering the product. Brokers provide access to trading platforms on which you trade CFDs. 

Will: What are some things you would advise beginners on looking for in a good platform?

How to choose a CFD trading platform?

Andy: Important question, especially given the options available. The first step is to look for a broker that is well-regulated. Please do your own due diligence and not just rely on what the broker may state. If you end up trading with a poorly regulated broker you are at risk of losing your funds. The next step would be to check that the broker provides the products you wish to trade. The final step, in my opinion, would be to look at the cost of trading with the broker. This final step is not straightforward as brokers tend to hide the cost of trading with misleading marketing messages but it is worth spending time and doing your homework to find your best option.  

Will: And also, it only seems fitting to chat about Trade Nation. Tell us about the platform and what it does. Is it safe, regulated, good for beginners, and how much does it cost to use?

What is Trade Nation?

Andy: Trade Nation is a broker. 

Will: And tell us a bit about the company. 

Who founded it, why did they create it, and what does the future hold for Trade Nation?

Kevin Taylor founded the broker back in 2013. We started operations as a B2B provider of CFDs and Spread Betting, switched to a B2C model in 2015/16 and only recently in 2021 amalgamated our different trading names into the name of Trade Nation.

Back at the start, we were only regulated in Australia with 12 staff members. Today we are regulated in Australia, The Bahamas, Seychelles, South Africa and the UK with over 140 staff globally. I very much hope we have a bright future in our endeavours of becoming the value broker of choice. 

Will: Great, thanks. I wish you well in your endeavours. How about the UK? 

What is Trade Nation’s vision for the UK?

Andy: We think the UK market still holds a lot of potential. Our headquarters are in Moorgate, London, and a large proportion of our clients come from the UK. We sponsor Aston Villa and several racing drivers. We feel that we can become the Value Spread Betting provider in the UK. 

Will: Sounds amazing. Everything so far has been positive, but there have to be some drawbacks to CFDs right? And some things investors need to carefully consider.

What are the risks of trading CFDs?

Andy: Investors need to respect that CFDs are a leveraged product. Whilst they enable investors to magnify profits on capital outlay they also enable investors to magnify losses. Without proper risk management, there is the risk of losing your funds. Subject to finding a reliable broker, the leveraged element of CFDs is the biggest risk in my opinion if not respected.

Will: Interesting Andy. At this point, a reader is probably trying to work out if CFDs are for them, what would you suggest they consider when deciding if CFDs are a suitable investment option?

Who are CFDs good for? Are CFDs good for beginners?

Andy: CFDs are good for those who want to speculate on the financial markets over a relatively short time. CFDs are a very useful trading tool for those who wish to trade and everyone has to start somewhere so they are not bad for beginners, it is just important for beginners to take their time in getting to grips with trading a leveraged product.

Will: Great Andy.

Let’s start to wrap things up…

What tips would you give to someone looking to get into CFD trading?

Andy: Don’t rush in. Take your time to get familiar with the product. Do your due diligence in finding the right broker for you. Treat trading as a business and so have a trading plan/business plan mapped out.

Will: Great, it’s been a pleasure speaking to you today, and sharing all your knowledge and expertise. I do have one more question for you…

What does the future hold in the UK for CFDs?

Andy: CFDs are not really the choice of product for the UK market, it is more Spread Betting due to the tax advantages. The UK market was impacted in 2018 when product intervention by the regulator put restrictions on offering the product, most notably the imposition of maximum leverage, but the changes have now been fully digested and the product is still very appealing for those who wish to speculate over short time frames, arguably more appealing. Further regulation will present its challenges, for instance, the Consumer Duty obligations on brokers recently imposed, but the product is well established enough to cross any hurdles going forward.

Important links:

Andrew Merry, Chief Commercial Officer at Trade Nation – LinkedIn

Read our complete Trade Nation review and check out our roundup of the best CFD brokers in the UK.

Will Fenton is the founder of Sterling Savvy. He is a personal finance expert and writes about trading, investing, budgeting, and other financial topics.

Along with his education in Economics & Finance, he has experience working in the financial services industry in London working for one of the UK’s leading financial companies, “a trustworthy and respected provider of news, education and market analysis for the everyday investor”.

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