By- Jacob Johansson
Internet and the digital world have made it easier for anyone to become private investors and skilled traders. Not only can you tread easily and efficiently online, but you can also learn from the best through guides and articles. It has made trading and investing more popular than ever, and it can seem as though everyone wants to trade these days. One of the popular forms of trading in the UK is CFD trading.
CFD stands for contract for difference, and it allows traders to speculate on market movements that might appear in the future. This is done of an underlying asset, and you can do so without owning or taking physical delivery of the asset in context. You can trade CFDs in several underlying assets, such as shares, commodities, and foreign exchange.
Starting to trade CFDs can be complicated, as it is with any new form of investing. It is therefore important to acquire sufficient knowledge of the subject, and only start once you have gained the skills needed. Furthermore, it is important to be up to date on the UK CFD trading regulations.
In the United Kingdom, CFD trading is regulated by the Financial Conduct Authority (FCA). The FCA sets specific requirements on businesses to safeguard retail traders. There are restrictions on the amount of leverage that may be used, which vary depending on the asset and volatility. The maximum leverage is 1:30, and it's only accessible on the most stable currency pairings. The ratio of stocks to shares is normally approximately 1:5, however, this can vary. These regulations also imply that brokerages need to have negative balance protection on accounts with CFD.
The results of a deal are doubled when trading on leverage. This could suggest that your losses are more than your deposit, and negative balance protection implies that if the price of an asset swings substantially, traders will receive a margin call. A trader must demonstrate their ability to afford the position by depositing additional cash. The account will only be allowed to cancel current positions until this is completed; it will not be able to start new ones.
An important issue that regards all that is trading and investing, is taxes. It is highly important to follow the tax regulations and report any wins and losses. When it comes to CFD trading in the UK, there are some tax consequences to be aware of.
It is unlike employer-paid taxes, which many might be familiar with. These are collected through PAYE, merchants, however, must disclose profits to HMRC. Because CFD earnings include the selling of an asset, they are normally subject to capital gains tax rather than income tax. Professional tax advisors can help with issues regarding the taxing of investments.
During the pandemic, nearly 1.8 million people dabbled in the stock market and became investors nearly overnight and CFD trading is and popular way to do so.
Disclaimer: (This article is sponsored and includes some commercial links)