CFD Trading - Contracts for Difference - is becoming increasingly popular in recent years. It's simple and you don't need a large sum of money in advance. It is approachable by anyone - the only barrier to entry may be the jargon. So I'd like to use simple words to explain what CFD is briefly, and also in this Plus 500 review, I'd like to show you the demo of one of the famous and reliable CFD service providers in the UK, Plus 500 UK Ltd.
Please note however, while CFD is available in many countries across the globe, not permitted in others including the USA for regulatory reasons. It is permitted in Canada, but unfortunately the product I'm going to introduce later on (Plus500) is not available in Canada either.
*** 2022 Update: Please note that I am no longer affiliated to this company, therefore some of the information here may become outdated in the future. Any questions, I suggest that you check with Plus500 directly - they may not always email back to you in time but they will eventually with helpful answers.
What Is Plus500?
Plus500 is a global financial company that provides online CFDs trading services. Anyone over the age of 18 can sign up with Plus500 for free, as long as they reside in a country where CFD trading activities are permitted. The trading facilities include shares, forex, ETFs, commodities, options, and indices. (Plus cryptocurrencies in some countries.)
Established in 2008 in the United Kingdom, Plus500UK Ltd. is approved and regulated by FCA (Financial Conduct Authority).
*** 2021 Update: Plus500 has now been the main sponsor of five sports clubs worldwide, mainly in Europe and Australia.
What is CFD (Contract For Difference)?
Prices in the world change every second - company share prices, foreign exchange rates, commodities (oil, gold, coffee & sugar), world indices. Contract For Difference(s) is where you enter into a contract at the quoted price, where you speculate whether the price will go up or down in the future. And when the position is closed, the difference between the contract price and the closing price is settled in cash.
The Countries Where CFDs Are Available
I have asked Plus500 support for a list of countries that permit CFD trading, however they say, "according to regulation changes, the list of countries changes from time to time." With that said, Plus500 indeed operates in various regions and CFDs are available in many countries across the globe, including;
- Asia-Pacific: Australia, New Zealand, Japan, Russia, Singapore.
- Europe: Austria, Cyprus, France, Germany, Ireland, Italy, The Netherlands, Luxembourg, Norway, Poland, Portugal, Romania, Spain, Sweden, Switzerland, United Kingdom.
- Middle East: Israel, Turkey.
- Others: South Africa, Canada.
Please note that CFDs are not permitted specifically in the United States and Hong Kong due to their high-risk nature.
How Does CFD work?
It works like this: instead of purchasing 1,000 Microsoft shares from a stockbroker, you buy a 1,000 CFDs on the platform. If the share price rises by $5, you'll make a $5,000 and if it falls by $5, you'll lose $5,000. But you don't pay that much of money (unless you want to) - you set a criteria how much you could afford to lose, and pay enough money as a deposit.
...to rephrase it, unlike an investment, you either receive your profit or suffer the loss without owning the asset.
With Shares and Commodities, you can also start by "selling" at the opening position. If you think the oil price will fall, you want to "sell it" now. The price falls and you "buy it back". Of course what you receive is just the profit - difference between the opening price and the closing price. If the price rises against your wish, you'll have to pay the difference.
Leverage of "10%" (or 1:10) means that if the price of the asset changes by 1%, the price of the CFD will change by 10%. So CFD offers an accelerated return. Small price changes in the asset will be magnified, so it multiply gains, but it can also multiply losses. Remember, it can result in the loss of your entire capital, so you need to understand the risk before start trading for the first time.
I have tried Plus500 and found a lot of great features that include;
- Instant access and easy to navigate.
- You can trade on web, or download the module onto Windows PC or download app for iPhone, iPad, iWatch, Android or Windows phone.
- Support is reliable (by either chat or email form). I usually send an email with queries any time of day, and at the quickest, I receive a reply within 12 hours or so. If I need a quick piece of advice, I use the chat facility, and someone (real person) greets me before I finish typing my question.
- Instant access to a demo account is very useful. No time limit, no need to use real money therefore no risk, also the demo is in real market conditions. You can receive online help and support while trying the demo.
- Usually CFD providers charge commissions every time you trade. Plus500 doesn't charge commissions, but instead only take a % of the spread (=difference between opening & closing prices)
The Available Instruments
Now I'll explain some of the instruments that Plus500 covers.
#1 Indices CFDs
You'll receive real-time streaming quotes on country indices and sector indices. The service allows you to set price alerts and notifications on live quotes for no charge.
- Leverage your trades to maximize the size of your profits without committing large amounts of capital. CFDs can be traded with leverage up to 1:20, allowing you to start with as little as £100 and gain the effect of £2,000 for your account.
#2 Forex CFDs
Trade the most popular forex pairs like EUR/USD, GBP/USD and EUR/GBP. To limit losses and lock in profits, Plus500 offers advanced trading tools such as Stop Loss, Stop Limit, and Guaranteed Stop. You can also monitor charts with indicators and get real-time forex quotes for free.
- Trade on 60+ Forex Pairs With Leverage: Trade foreign exchange with up to 1:30 leverage, meaning you put in as little as £100 to gain the effect of £3,000 capital.
#3 Commodity CFDs
Access to all commodities, such as oil, gold, silver, coffee, natural gas, corn, sugar, etc. available on our leading trading platform. A free notifications service is also available for managing your money and trading activity.
- Trading Commodities With Leverage: Available with up to 1:20 leverage. Even with only £100, you can have the effect of $2,000 of capital.
- Easily define Stops and Limits to close positions at a specified rate. On the Plus500 trading platform, you can manage your profits and losses easily. A Guaranteed Stop can also be configured to completely prevent slippage.
#4 Share CFDs
Plus500 trading platform allows you to trade shares from all popular markets such as USA, UK, Germany, etc. Trade shares CFDs such as Meta ad Apple. No stamp duty, which means you will save 0.5% compared to a traditional share purchase in the UK. You can also use the advanced tools to take advantage of falling or rising markets by opening Sell or Buy positions. Moreover, with Plus500’s Guaranteed Stop feature, you won't have to worry about slippage.
- Trade Shares With Leverage: Trading with up to 1:5 leverage will enable you to start with just £100 to gain the effect of £500.
#5 Options CFDs
Profit (or loss) from the volatility of the market with Plus500’s option trading CFDs. Leverage is available for a trading call and puts options on Germany 40, Oil, and Meta. The risk management tools allow you to set price alerts, Stop Loss and Trailing Stop to mitigate risks. Also Guaranteed Stop to avoid a complete slippage. The position will be closed at the exact rate you define.
- Trade Options CFDs With Leverage: With up to 1:5 leverage, you can start with as little as £100 to gain the effect of £500 capital.
#6 ETFs CFDs
Get leveraged trading on the most popular Exchange Traded Funds (ETFs), like VXX Volatility and SPDRUSA500. Set free Stops and Limits on your positions to manage your profits and losses.
Advanced technical analysis tools will get you real-time streaming quotes, let you analyse the charts to dig out trends according to your personal preference.
- Trade ETFs With Leverage: With up to 1:5 leverage, you can start with as little as £100 to gain the effect of £500 capital.
#7 Cryptocurrency CFDs ***
The UK Financial Conduct Authority currently prohibits the sale to retail clients of investment products that reference cryptocurrencies, i.e. including CFDs. Accordingly, cryptocurrency CFDs are not available in the UK Plus500. But they are available on the platform in some other countries (which I’m unable to see as I live in the UK.) Regulatory laws differ from country to country, and they do change every now and again. So that’s all I can say at the moment.
How To Open A Plus500 Demo Account For FREE
The great thing about Plus500 is that a demo module will always be ready for you. It allows you to log into the demo mode instantly, get familiar with it, and play around with it as many times as you wish. When you’re confident, you can simply switch it to “Real Money” mode. Here are the simple steps.
1. Choose “Demo Mode”
On the homepage - or any of the main pages - you’ll find a button or text that reads “Try Free Demo”. It’s indicated towards the centre of the page, so you won’t miss it. Click it.
2. Sign up
Signing up couldn’t be easier. You just need to enter your email address and set up a password. Nothing else. Or alternatively, you can sign up using your Google account, Facebook account, or Apple ID.
3. Demo Module Is Ready To Use
That’s all you have to do to get your demo account started. The UK version will have a mock £40,000 in your account, and I assume the other versions also have some equivalent amount in the demo version. The left-hand side menu is self-explanatory. I strongly suggest that you start with Help menu and go through step-by-step guide. And when you're ready, the button towards the bottom will enable you to switch to the live module to start trading.
No Hidden Fees
The good thing about Plus500 is that there are no hidden fees. Unlike other services, it doesn’t charge you for each trading transaction because it’s included in the market spread.
(For example, if a forex buy rate is 1.1016 and the sell rate is 1.1010, then the market spread will be 0.6 pips.)
An admin extra fee will incur in special circumstances or order, such as;
Overnight funding (funds added or subtracted from your account urgently.)
Currency conversion fee (up to 0.7%.)
Up to US$10 or equivalent if you don’t log in for 3 months for inactivity.
Guaranteed Stop Order (the fee will be subject to a wider spread)