CFDs are acquired products in such a way that they allow you to gamble on markets such as shares, foreign exchange, and other commodities without owning the assets. When you settle with trading a CFD, you agree to exchange the difference in the asset price from when it was opened to its close.
CFD stocks can get suspended from trading. This is something that can potentially happen if you get into this kind of financial trade. Listed companies can be under a restricted status or a trading halt for up to five trading days and can even be extended into suspension for an indefinite period. This can happen as a result of movements or events in the market such as potential price sensitive announcements or other factors that cause a critical share price movement.
How do these restrictions or suspensions affect CFD stocks?
One of the most important features of a CFD stock is that its price movement still gets reflected even without physical share ownership. A CFD trader who holds a position that gets suspended should examine the movement to know what triggered the change in status since it will be reflected in the CFD trading.
When a suspension or a trading halt happens, the CFD cannot be traded in the market and traders will not be able to open or close the position. If a trader holds a current position in this situation, it will remain open until the suspension is over. Therefore, traders should be aware of the financing charges that may apply if a position is held for a period of time.
What happens when a suspension gets lifted?
Once a suspension gets lifted, there are three possible results – positive, negative, or neutral.
A positive result is when, for example, a company has received a takeover at a hefty amount before the suspension period. This will result in a large profit if the position has been a long trade. If not, it may incur losses.
A stock may also go into suspension before a negative market release. For instance, if a stock that entered the suspension period was going into a profit downgrade, it could be advantageous as the downgrade in share price has already been expected beforehand.
There are cases wherein listed companies experience compelling challenges and resort to external administration. In such circumstances, they may fail to be recognized in the market. When this happens, CFD shareholders may incur a total loss as the company will be considered worthless and as a result, its CFD positions may close out at zero price.
If, let’s say, a security discontinues to trade or gets suspended for five consecutive trading days, a CFD position may be closed at a price appropriately set by the provider by considering various factors, one being the last traded price of the security.