CFDs

One of the benefits of CFDs is that the buyer does not actually acquire the underlying mentioned above, he merely bets on how it will develop. This significantly reduces the investor's costs. As a rule, the margin ties up less capital than a direct investment in the CFD underlying and so the investor has more capital available for other trading positions.

Thanks to the lever effect, the amounts the investor can move are larger than those he is required to invest. While the shareholder only ever invests the equivalent of his shares, a CFD allows him to move multiples of this amount.

The potentials of CFD trading are a particular argument that is convincing more and more investors of this class of securities. While an equity investor achieves gains only if his shares rise and suffers a loss if the price falls, a CFD allows him to profit even if the share price declines - providing his has previously backed the CFD concerned. The high degree of flexibility created by these potentials  help the investor implement more complex strategies on the capital market, since he is also able to make profits on the bear markets. In addition, he can hedge against price losses.

CFDs can also involve major price losses and the investor may have an unlimited call liability. The mentioned lever effect of CFDs works in both directions: If the price develops contrary to the investor's expectations, the corresponding losses are also disproportionately high. If such losses exceed the amount of the capital provided on the CFD account to secure open CFD positions, the investor has to contribute additional funds to restore the security. If the investor is unable to provide these funds, or fails to provide them in due time, the bank shall be entitled to close his open CFD positions. To be very clear: The loss risk is not limited to the original investment, it can also involve other assets of the client.

It is therefore evident why CFDs must usually be assigned to the same risk class as warrants and leverage certificates. This simply means that such instruments, due to their higher than average risk (which is in turn also the reason for their higher than average profit opportunities), should be offered only to experienced investors or to investors who are well-informed and aware of this risk.

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