Long and short speculation

CFDs can be utilised as short-term trading instruments to speculate on future share price movements. The ability to open both long and short CFD positions means that CFDs can be used to speculate on both upward and downward price movements. The large amounts of leverage that can be accessed via CFDs enables investors to have greater exposure to the movement of the underlying securities than their available capital would otherwise allow. The use of leverage significantly increases the risk profile of an investment, and investors should make sure they read and understand the risks as set out in the CFD Terms and Conditions.

Hedging

CFDs can be used to hedge an existing holding or exposure against adverse price movements. The effect of a decrease in the price of a share may be neutralised by taking a short position in a CFD over the same share. This strategy may be particularly useful if the holder of the share has a negative short-term view on the share's price but has a more positive longer-term view or otherwise would like to hold the shares. Investors should consult a tax consultant to assess the tax consequences arising as a result of trading in CFDs and using CFDs to hedge their portfolio.

Pairs trading

Pairs trading involves speculating on the relative performance of two different securities. An example would be taking a long position in a CFD with respect to shares in one company and taking a short position in a CFD relating to shares in a different company, generally within the same sector. Pairs trading can provide a means by which investors can hedge some risk involved in taking a straight long or short position, and may mean that credit premium adjustments received on the short position can offset part of the debit premium adjustments due on the long position.