Learn About CDS tradingCredit Default Swaps ExplainedCDS stands for credit default swaps. A CDS gives you benefits of the underlying cash bond while avoiding the typical costs associated with dealing in the physical bond. CDS trading allows you to gain cost-effective, flexible and geared exposure to bonds and credit indices. A CDS is a derivative product and as such is not regulated on any exchange. As it is a leveraged product, you only have to put up a fraction of the actual value of the trade you wish to do. You can go long or short of a range of credit markets to profit from rising or falling prices. You simply buy credit protection if bond prices are moving down (or credit spreads are rising), or sell credit protection if bond prices are up (or credit spreads are falling). See an example of how CDS trading works for Vodafone. Why trade CDS?CDS is versatile, quick and easy. You can trade a number of different financial products on one account. Our deal sizes cater to professional traders. These can be seen on a trading simulator and it is advisable that you practice trading before using the instrument. CDS can result in losses higher than your original deposit. CDS trading may not be suitable for everyone, so please ensure that you fully understand the risks involved. How CDS Trading worksThe concept of CDS trading is simple. If you think credit spreads are set to rise you “buy” credit protection at the top end of our quote (the offer price), or if you think credit spreads are set to fall you “sell” credit protection at the bottom of our quote (the bid price). Your position is a bet: you never own the instrument you are “buying”. The important fact is that when you “buy” you want the spreads to go up, and when you “sell” you want the spreads to drop. |
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