UK CFD Providers

What's On Offer: The following profiles highlight the range of CFD services available:

CMC Markets -

CMC offers CFDs on more than 1,000 different instruments including UK and international shares, indices, treasuries and commodities. Clients can trade all these diverse markets online using the company's award-winning Marketmaker software. This advanced real-time trading system comes complete with live dealing prices, breaking news, professional charting and market analysis.

Those who rely on technical analysis as a central component of their trading will appreciate the integrated real-time charting capability. David Jones, chief market analyst at CMC Markets, says that it provides a professional level charting package that runs off both historical and real-time data. The analysis can be presented in a variety of different formats such as line, bar and candlestick and comes complete with a comprehensive set of customizable indicators, while the more adventurous can also program their own.

'What's unique to us is that we have a comprehensive back-testing function. For example, a client who wanted to evaluate whether a strategy ofbuying the FTSE when the RSI fell below 30 and selling when it rose above 70 could test this out on historic data, with the software generating the list of trades and their profitability,' he says.

One of the most striking aspects of the service is that the company does not charge commission. Instead, CMC actually fulfils the role of market maker and generates its income from the underlying bid-offer spread. CFD prices are derived from the share markets with competitive dealing spreads that will often mirror the true cash price.

Simple CFDs -

Starts each customer relationship with a face-to-face meeting at its offices in Godalming, Surrey. Most clients opt for the company's advisory service and the initial meeting helps to establish objectives and risk parameters. Arrangements generally proceed with clients providing the authority on a month-by-month basis for the team to trade their accounts within the agreed parameters.

'We always insist on having a game plan around every trade and this includes the entry price, target and stop loss,' says Renato Rufus, managing director.' Each of our brokers specialises in a particular sector and, within that, concentrates trading on a narrower group of shares.'

E*Trade -

E*Trade is unusual in offering clients the opportunity to choose between flat rate CFDs and Direct Market Access, or DMA.

Under the flat-rate option, when an investor places a trade online, he receives an instant automated quote in the form of a bid/offer ticket that he can buy or sell. Commission is £9.95 and this makes for big savings when dealing in large size. Prices on the FTSE 100 CFDs match the underlying market but a small additional fixed spread is added when dealing in FTSE 250, Euro and US stocks.

DMA is a more sophisticated product. Rather than being presented with a bid/offer quote, the trader is instead given direct access to the exchange's electronic order book. This enables him to become a price maker rather than a price taker and enter his own bid and offer into the market in the hope of getting a favourable fill. DMA is available on UK, European, US and international CFDs with a commission charge of 0.20%.

Jonathan Scott, senior broker at E*Trade Securities, says that flat-rate CFDs are simple and transparent with cash market prices and fast execution, while DMA allows traders to interact with the order book so that they can potentially trade within the market spread.

'Clients sometimes alternate between the two. A flat-rate CFD works out good value when placing a position trade but tactics such as filling gaps in the order book to take advantage of liquidity imbalances are only possible with DMA,' he says.

GNI Touch -

GNI offers Direct Market Access CFDs on the UK, European and US markets. With a DMA service, whenever a client places a CFD order, the trading platform will automatically generate an identical hedging trade directly into the relevant stock exchange. The client can witness this shadow trade appearing on the exchange's order book via the Level 2 screen.

Philip Adler, who runs GNI's CFD business, says that it was the first company to offer this sophisticated facility to private traders.

'We are CFD experts. We have a team of brokers who look at the markets all day, a good trading platform and excellent research. Being part of the Man Group means that clients can also be confident their capital is safe,' he says.

The advantage of Direct Access is fast order execution at the true underlying cash market price. Interacting directly with the London Stock Exchange's SETS electronic order book may also enable clients to trade within the usual bid/offer spread and gives them the opportunity to participate in the opening, closing and intraday auctions, where very often the best prices of the day are achieved.

'We are really targeting professional or semi-professional traders looking to make a living from the markets,' says Adler. 'We have a core day trading community and are well-placed to cater for them.'

Commission for those who trade 15 times or more a month is a negotiable 0.20% with no extra charge for the trading platform other than the relevant Exchange Fees. Less frequent traders will pay 0.25% and £50 per month for the platform.

Listed CFDs -

Those uncomfortable with the idea of trading an instrument where the potential loss is not limited to the initial outlay may prefer the new Listed CFDs issued by SG Corporate & Investment Banking, part of the Société Générale Group. At present there are contracts on around a dozen individual stocks as well as select market indices.

Christophe de la Celle from SG Securities says that Listed CFD trading is growing very rapidly: 'The most traded products are contracts on UK Blue chip stocks. There has also been strong interesting smaller companies such as and more notably on Listed CFDs based on the Merrill Lynch World Commodity Investment trust.'

When investors buy a Listed CFD via a broker, they are in fact acquiring an existing CFD contract, which is either long or short and has a pre-defined "Entry Level" - a notional level at which the contract was created.

Purchase of 10,000 Vodafone (long) CFDs CFD (unlisted) Listed CFD
Market price 118-118.25p 18.3 - 18.8p
Nominal exposure of 10,000 shares £11,825 £11,825
Funds required 10% Margin: £1,182.50 Cost (10,000*18.8p) £1,880
Same day share price rises 7p to 125p and position is closed  
Sales value 10,000*125p: £12,500 10,000 *(18.3p+7p) £2,530
Gain before commission £675 £650
Commission on purchase Typically 0.2% £23.65 £12.50
Commission on sale Typically 0.2% £25 £12.50
Profit after costs £626.35 £625

Take the Long Vodafone Listed CFD as an example. This contract has an entry level of 100p. If the shares were trading at 118p, the price of the CFD would be 18p. Were the shares to increase by 2p then so too would the CFD and the holder would make a 2p profit per contract in the same way as if he had held an unlisted CFD (see table).

All Listed CFDs have a built-in stop-loss, while the Entry Level also acts as a guaranteed stop. This means that an investor cannot lose more than their initial margin payment no matter how badly markets move against them. The stop loss on the Vodafone contract is 109p and if this were hit during normal market conditions, the contract would be automatically closed at this level and the proceeds returned to the investor. Were the company to issue a profits warning and the price to gap straight down to 90p, the guaranteed stop would cut in at the Entry Level of 100p.

'Traditional CFDs are unlimited liability products, where the holder can end up losing much more than their original investment, 'says de la Celle. 'By contrast, Listed CFDs are strictly limited liability contracts. This means that if an investor opens a Listed CFD position, he will never face additional margin payments and can never lose more than his original investment.'

In terms of costs, a Listed CFD is traded through a broker like a normal share and as such will only involve the standard commission charge, which will normally be around £12 to £15. Most unlisted CFD providers charge commission of 0.20% or 0.25% on the nominal exposure, which will work out more expensive for a large trade.