Learn cfd trading

BHP has a sell price of $27.59, and a buy price of $27.60. With so many markets to choose from, identifying your first trade can often seem daunting.

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That’s why we offer a range of tools and resources to help you decide on the deal that’s right for you:

How to trade cfds

CFD trading enables you to speculate on the future movements in a market’s price – going ‘long’ if you think it will rise or ‘short’ if you think it will fall. This guide shows you how to trade cfds step-by-step, from opening an account to closing a position, and illustrates the process with example CFD trades.

Interested in trading cfds with IG?

Call +61 3 9860 1799 or email helpdesk.En@ig.Com to talk about opening a trading account. We’re here 24 hours a day, from 8am saturday to 10pm friday (UK time).

CFD trading steps

When you trade cfds (contracts for difference), you buy a certain number of contracts on a market if you expect its price to rise, and sell them if you expect it to fall. But the finer details can often be a little more complicated – especially since platforms and functionality vary from provider to provider.

Here are the six steps you’ll need to follow to start CFD trading:

Learn how cfds work

The first step towards trading cfds is to learn how they work. There are a number of differences between cfds and other forms of trading, and understanding these nuances can help you trade more effectively.

To get started, you can take a free online course through IG academy or read our one-page introduction: what is CFD trading and how does it work?

Create and fund an account

Applying for a CFD trading account is a straightforward process, and usually takes just a few minutes to complete.

Once the details you provide have been verified, you’ll need to fund your account. You can add funds via credit card or debit card.

If you’d prefer to build your market confidence in a completely risk-free environment, you can open a demo account and practise with $20,000 of virtual funds.

Build a trading plan

The next step is to build a trading plan – a comprehensive blueprint for your trading activity. Among other things, this should include your motivation, time commitment, goals, attitude to risk, available capital, markets to trade and preferred strategies.

A trading plan can help you make better decisions under pressure because it defines your ideal trade, desired profit, acceptable loss, and risk management strategies.

Find an opportunity

Once you’ve opened and funded your account, it’s time to find your first trade. With IG, you’ll be able to go long and short on over 17,000 markets, including:

With so many markets to choose from, identifying your first trade can often seem daunting. That’s why we offer a range of tools and resources to help you decide on the deal that’s right for you:

Spot market moves at a glance with our essential charts, and interpret what they mean using our range of technical analysis tools

Upgrade to our advanced prorealtime charting package and gain access to automated dealing, as well as even more indicators. It’s free to use if you transact at least four times in a given month, otherwise there’s a $40 per month fee*

Respond instantly to key market moves with alerts, which can be set to trigger when the market hits a certain level or moves by a set amount

Learn from our team of market experts with up-to-the-minute analysis and live video, as they explore emerging patterns and trends worth watching

Access a real-time reuters feed in the platform, and filter the latest news stories by market, article type and more

Be alerted to key trends and potential opportunities and explore concise, actionable analysis with third-party signals

View our economic calendar and gain a full overview of macro and microeconomic events with the potential to move markets

Review dedicated market data for a breakdown of trader sentiment, the latest company figures and real-time streaming prices

Identify shares you may want to trade with the market screener, according to company fundamentals, location, sector and more

Choose your CFD trading platform

With IG, you’ll have access to several trading platforms:

Web-based platform

Mobile trading apps

Metatrader 4

Advanced platforms

These can all be tailored to suit your trading style and preferences, with personalised alerts, interactive charts and risk management tools.

Open, monitor and close your first position

When you’ve decided which market you want to trade, you’re ready to place a deal. The first thing to decide is whether you want to go long or short. Say, for example, that you want to trade the FTSE 100. If you think its value will fall, you sell (‘go short’); if you think it will climb, you buy (‘go long’). Having the option to do either is one of the main benefits of CFD trading.

Once you’ve taken your position, your profit or loss will move in line with the underlying market price. You can monitor all your open positions on the trading platform, and close them by clicking the ‘close’ button. You can also do this manually by placing the same trade you originally placed, but in the opposite direction (unless you force open the new position). So if you opened your position by buying, you could close by selling the same number of contracts at the sell price – and vice versa.

Your profit or loss is calculated by multiplying the amount the market moved by the size of your trade in pounds per point. Here’s an illustrated example of how this works:

When placing a trade, there are a few things to keep in mind:

Buy and sell prices

You’re always offered two prices based on the value of the underlying instrument you are trading: the buy price (the bid) and the sell price (the offer).

The price to buy will always be higher than the current underlying value and the price to sell will always be lower. The difference between the two prices is called the spread. Most CFD trades with IG are charged via the spread, with the exception of shares, which incur commission.

Number of contracts

When trading cfds, you need to decide how many contracts you want to trade. Each market has its own minimum number of contracts: the FTSE 100’s, for instance, is one contract.

In this case, one contract is equivalent to $10 per point, but this also varies from market to market. $10 per point means you’ll make or lose $10 for every point of movement in the value of the index. We also offer mini contracts on key markets, giving you more flexibility over the sizes you trade in.

Keep in mind that as cfds are leveraged products, you only ever need to put down a small deposit to gain exposure to the full value of the trade. This means your capital goes further, but also means that you could lose more than your initial outlay.

Stops and limits

To help restrict your potential losses, you might choose to add a stop. Stops automatically close your position when the market moves against you by a specified amount. You can choose from a number of different types of stop, including:

Basic: closes you out as near as possible to the price level you choose. A basic stop may be affected by ‘gapping’ overnight or in times of high volatility

Guaranteed: closes you out at the level you requested, regardless of whether the market gaps. This will incur a small premium, but only if the stop is triggered

Trailing: moves with your position when the market moves in your favour, but locks in as soon as the market starts to move against you

Limits, meanwhile, do the opposite, closing your position when the market moves a specified distance in your favour. Limits are a great way to secure profits in volatile markets.

CFD trading examples

At first glance, CFD trades can seem more confusing than traditional trades – so here are some examples to guide you through opening and closing positions.

BHP has a sell price of $27.59, and a buy price of $27.60.

BHP’s next earnings announcement is fast approaching, and you expect it to be good news. You think the company’s share price will go up, so you buy 2000 share cfds at $27.60. This is the equivalent of buying 2000 BHP shares.

Because CFD trading is a leveraged product, you don’t need to put up the full value of these shares. Instead, you only need to cover the margin, which is calculated by multiplying your exposure with the margin factor for the market you are trading.

So if BHP has a margin factor of 5%, then your margin would be 5% of the total exposure of your trade (2000 share cfds x $27.6 = $55,200), which is $2760.

If your prediction is correct

When BHP announces its results, it’s clear the company has had a successful quarter – and as you predicted, its share price climbs. You decide to close your position when it reaches $29.60, with a buy price of $29.61 and a sell price of $29.60

You reverse your trade to close a position, so you sell your 2000 cfds at a price of $29.60.

To calculate your profit, you multiply the difference between the closing price and the opening price of your position by its size. $29.60 – $27.60 = $2, which you multiply by 2000 cfds to get a profit of $4000.

Just remember that you’ll also need to pay a commission fee and any overnight funding charges. Please refer to your tax adviser for tax matters.

What is a contract for difference?

A contract for difference (CFD) is a popular form of derivative trading. CFD tradingвђ‹ enables you to speculate on the rising or falling prices of fast-moving global financial markets, such as forex, indices, commodities, shares and treasuries.

Get tight spreads, no hidden fees and access to 9,300+ instruments.

CFD meaning

A contract for difference (CFD) is essentially a contract between an investor and an investment bank or spread betting firm. At the end of the contract, the parties exchange the difference between the opening and closing prices of a specified financial instrument, which can include forex, shares and commodities.

What is CFD trading?

Some of the benefits of CFD trading are that you can trade on marginвђ‹, and you can go short (sell) if you think prices will go down or go long (buy) if you think prices will rise. Cfds have many advantages and are tax efficient in the UK, meaning that there is no stamp duty to pay. Please note, tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the ukвђ‹.Вђ‹ you can also use CFD trades to hedge an existing physical portfolio. With a CFD trading account, our clients can choose between trading at homeвђ‹ and on-the-go, as our platform is very flexible for traders of all backgrounds.

Introduction to CFD trading: how does CFD trading work?

With CFD trading, you don't buy or sell the underlying asset (for example a physical share, currency pair or commodity). Instead, you buy or sell a number of units for a particular financial instrument, depending on whether you think prices will go up or down. We offer cfds on a wide range of global markets, covering currency pairs, stock indices, commodities, shares and treasuries. An example of one of our most popular stock indices is the UK 100, which aggregates the price movements of all the stocks listed on the UK's FTSE 100 index.

For every point the price of the instrument moves in your favour, you gain multiples of the number of CFD units you have bought or sold. For every point the price moves against you, you will make a loss.

What is margin and leverage?

Contracts for difference (cfds) is a leveraged product, which means that you only need to deposit a small percentage of the full value of the trade in order to open a position. This is called вђ˜trading on marginвђ™ (or margin requirement). While trading on margin allows you to magnify your returns, your losses will also be magnified as they are based on the full value of the position. This means that you could lose all of your capital, but as the account has negative balance protection, you can't lose more than your account value.

What are the costs of CFD trading?

Spread: when trading cfds, you must pay the spread, which is the difference between the buy and sell price. You enter a buy trade using the buy price quoted and exit using the sell price. The narrower the spread, the less the price needs to move in your favour before you start to make a profit, or if the price moves against you, a loss. We offer consistently competitive spreads.

Holding costs: at the end of each trading day (at 5pm new york time), any positions open in your account may be subject to a charge called a 'CFD holding cost'. The holding cost can be positive or negative depending on the direction of your position and the applicable holding rate.

Market data fees: to trade or view our price data for share cfds, you must activate the relevant market data subscription, for which a fee will be charged. View our market data fees.

Commission (only applicable for shares): you must also pay a separate commission charge when you trade share cfds. Commission on UK-based shares on our CFD platform starts from 0.10% of the full exposure of the position, and there is a minimum commission charge of ВЈ9. View the examples below to see how to calculate commissions on share cfds.

Example 1 - opening trade

A 12,000 unit trade on UK company ABC at a price of 100p would incur a commission charge of ВЈ12 to enter the trade:

12,000 (units) x 100p (entry price) = ВЈ12,000 x 0.10%

Example 2 - opening trade

A 5,000 unit trade on UK company ABC at a price of 100p would incur the minimum commission charge of ВЈ9 to enter the trade:

5,000 (units) x 100p (entry price) = 5,000 x 0.10%

= ВЈ5.00 ВЈ9.00 (as this is less than the minimum commission charge for UK share cfds, the minimum commission charge of ВЈ9 would be applied to this trade.)

Please note: CFD trades incur a commission charge when the trade is opened as well as when it is closed. The above calculation can be applied for a closing trade; the only difference is that you use the exit price rather than the entry price. Learn more about CFD commissions and trading costs.

An introduction to contract for differences (cfds)

A contract for difference (CFD) is a contract between a buyer and a seller that stipulates that the buyer must pay the seller the difference between the current value of an asset and its value at contract time. Cfds allow traders and investors an opportunity to profit from price movement without owning the underlying assets. The value of a CFD contract does not consider the asset's underlying value: only the price change between the trade entry and exit.

This is accomplished through a contract between client and broker and does not utilize any stock, forex, commodity, or futures exchange. Trading cfds offers several major advantages that have increased the instruments' enormous popularity in the past decade.

Key takeaways

A contract for differences (CFD) is an agreement between an investor and a CFD broker to exchange the difference in the value of a financial product between the time the contract opens and closes.

A CFD investor never actually owns the underlying asset but instead receives revenue based on the price change of that asset.

Some advantages of cfds include access to the underlying asset at a lower cost than buying the asset outright, ease of execution, and the ability to go long or short.

A disadvantage of cfds is the immediate decrease of the investor's initial position, which is reduced by the size of the spread upon entering the CFD.

Other CFD risks include weak industry regulation, potential lack of liquidity, and the need to maintain an adequate margin.

Contract for differences (CFD)

How cfds work

A contract for differences (CFD) is an agreement between an investor and a CFD broker to exchange the difference in the value of a financial product (securities or derivatives) between the time the contract opens and closes.

It is an advanced trading strategy that is utilized by experienced traders only. There is no delivery of physical goods or securities with cfds. A CFD investor never actually owns the underlying asset but instead receives revenue based on the price change of that asset. For example, instead of buying or selling physical gold, a trader can simply speculate on whether the price of gold will go up or down.

Essentially, investors can use cfds to make bets about whether or not the price of the underlying asset or security will rise or fall. Traders can bet on either upward or downward movement. If the trader that has purchased a CFD sees the asset's price increase, they will offer their holding for sale. The net difference between the purchase price and the sale price are netted together. The net difference representing the gain from the trades is settled through the investor's brokerage account.

On the other hand, if the trader believes that the asset's value will decline, an opening sell position can be placed. In order to close the position, the trader must purchase an offsetting trade. Then, the net difference of the loss is cash-settled through their account.

Countries where you can trade cfds

CFD contracts are not allowed in the U.S. They are allowed in listed, over-the-counter (OTC) markets in many major trading countries, including the united kingdom, germany, switzerland, singapore, spain, france, south africa, canada, new zealand, hong kong, sweden, norway, italy, thailand, belgium, denmark, and the netherlands.

As for australia, where CFD contracts are currently allowed, the australian securities and investment commission (ASIC) has announced some changes in the issue and distribution of cfds to retail clients. ASIC’s goal is to strengthen consumer protections by reducing CFD leverage available to retail clients and by targeting CFD product features and sales practices that amplify retail clients’ CFD losses. ASIC’s product intervention order will be effective on march 29, 2021.

The U.S. Securities and exchange commission (SEC) has restricted the trading of cfds in the U.S., but non-residents can trade using them.

Fast fact

CFD trading is surging in 2020; the increase in popularity may be because of covid-19-induced volatility in the markets. A key feature of cfds is that they allow you to trade on markets that are heading downwards, in addition to those that are heading up—allowing them to deliver profit even when the market is in turmoil.

The costs of cfds

The costs of trading cfds include a commission (in some cases), a financing cost (in certain situations), and the spread—the difference between the bid price (purchase price) and the offer price at the time you trade.

There is usually no commission for trading forex pairs and commodities. However, brokers typically charge a commission for stocks. For example, the broker CMC markets, a U.K.-based financial services company, charges commissions that start from 10%, or $0.02 cents per share for U.S. And canadian-listed shares. The opening and closing trades constitute two separate trades, and therefore you are charged a commission for each trade.

A financing charge may apply if you take a long position; this is because overnight positions for a product are considered an investment (and the provider has lent the trader money to buy the asset). Traders are usually charged an interest charge on each of the days they hold the position.

For example, suppose that a trader wants to buy cfds for the share price of glaxosmithkline. The trader places a £10,000 trade. The current price of glaxosmithkline is £23.50. The trader expects that the share price will increase to £24.80 per share. The bid-offer spread is 23.48-23.50.

The trader will pay a 0.1% commission on opening the position and another 0.1% when the position is closed. For a long position, the trader will be charged a financing charge overnight (normally the LIBOR interest rate plus 2.5%).

The trader buys 426 contracts at £23.48 per share, so their trading position is £10,002.48. Suppose that the share price of glaxosmithkline increases to £24.80 in 16 days. The initial value of the trade is £10,002.48 but the final value is £10,564.80.

The trader's profit (before charges and commission) is: £10,564.80 – £10,002.48 = £562.32.

Since the commission is 0.1%, upon opening the position the trader pays £10. Suppose that interest charges are 7.5%, which must be paid on each of the 16 days that the trader holds the position. (426 x £23.48 x 0.075/365 = £2.06. Since the position is open for 16 days, the total charge is 16 x £2.06 = £32.89.)

When the position is closed, the trader must pay another 0.01% commission fee of £10.

The trader's net profit is equal to profits minus charges: 526.32 (profit) – 10 (commission) – 32.89 (interest) – 10 (commission)= £473.43 (net profit).

Advantages of cfds

Higher leverage

Cfds provide higher leverage than traditional trading. standard leverage in the CFD market is subject to regulation. It once was as low as a 2% maintenance margin (50:1 leverage), but is now limited in a range of 3% (30:1 leverage) and could go up to 50% (2:1 leverage). Lower margin requirements mean less capital outlay for the trader and greater potential returns. However, increased leverage can also magnify a trader's losses.

Global market access from one platform

Many CFD brokers offer products in all the world's major markets, allowing around-the-clock access. Investors can trade cfds on a wide range of worldwide markets.

No shorting rules or borrowing stock

Certain markets have rules that prohibit shorting, require the trader to borrow the instrument before selling short, or have different margin requirements for short and long positions. CFD instruments can be shorted at any time without borrowing costs because the trader doesn't own the underlying asset.

Professional execution with no fees

CFD brokers offer many of the same order types as traditional brokers including stops, limits, and contingent orders, such as "one cancels the other" and "if done." some brokers offering guaranteed stops will charge a fee for the service or recoup costs in another way.

Brokers make money when the trader pays the spread. Occasionally, they charge commissions or fees. To buy, a trader must pay the ask price, and to sell/short, the trader must pay the bid price. This spread may be small or large depending on the volatility of the underlying asset; fixed spreads are often available.

No day trading requirements

Certain markets require minimum amounts of capital to day trade or place limits on the number of day trades that can be made within certain accounts. The CFD market is not bound by these restrictions, and all account holders can day trade if they wish. Accounts can often be opened for as little as $1,000, although $2,000 and $5,000 are common minimum deposit requirements.

Variety of trading opportunities

Brokers currently offer stock, index, treasury, currency, sector, and commodity cfds. This enables speculators interested in diverse financial vehicles to trade cfds as an alternative to exchanges.

Disadvantages of cfds

Traders pay the spread

While cfds offer an attractive alternative to traditional markets, they also present potential pitfalls. For one, having to pay the spread on entries and exits eliminates the potential to profit from small moves. The spread also decreases winning trades by a small amount compared to the underlying security and will increase losses by a small amount. So, while traditional markets expose the trader to fees, regulations, commissions, and higher capital requirements, cfds trim traders' profits through spread costs.

Weak industry regulation

The CFD industry is not highly regulated. A CFD broker's credibility is based on reputation, longevity, and financial position rather than government standing or liquidity. There are excellent CFD brokers, but it's important to investigate a broker's background before opening an account.

Risks

CFD trading is fast-moving and requires close monitoring. As a result, traders should be aware of the significant risks when trading cfds. There are liquidity risks and margins you need to maintain; if you cannot cover reductions in values, your provider may close your position, and you'll have to meet the loss no matter what subsequently happens to the underlying asset.

Leverage risks expose you to greater potential profits but also greater potential losses. While stop-loss limits are available from many CFD providers, they can't guarantee you won't suffer losses, especially if there's a market closure or a sharp price movement. Execution risks also may occur due to lags in trades.

Because the industry is not regulated and there are significant risks involved, cfds are banned in the U.S. By the securities and exchange commission (SEC).

Example of a CFD trade

Suppose that a stock has an ask price of $25.26 and the trader buys 100 shares. The cost of the transaction is $2,526 (plus any commission and fees). This trade requires at least $1,263 in free cash at a traditional broker in a 50% margin account, while a CFD broker requires just a 5% margin, or $126.30.

A CFD trade will show a loss equal to the size of the spread at the time of the transaction. If the spread is $0.05 cents, the stock needs to gain $0.05 cents for the position to hit the break-even price. While you'll see a $0.05 gain if you owned the stock outright, you would have also paid a commission and incurred a larger capital outlay.

If the stock rallies to a bid price of $25.76 in a traditional broker account, it can be sold for a $50 gain or $50 / $1,263 = 3.95% profit. However, when the national exchange reaches this price, the CFD bid price may only be $25.74. The CFD profit will be lower because the trader must exit at the bid price and the spread is larger than on the regular market.

In this example, the CFD trader earns an estimated $48 or $48 / $126.30 = 38% return on investment. The CFD broker may also require the trader to buy at a higher initial price, $25.28 for example. Even so, the $46 to $48 earned on the CFD trade denotes a net profit, while the $50 profit from owning the stock outright doesn't include commissions or other fees. Thus, the CFD trader ends up with more money in their pocket.

Cfds faqs

What are cfds?

Contracts for differences (cfds) are contracts between investors and financial institutions in which investors take a position on the future value of an asset. The difference between the open and closing trade prices are cash-settled. There is no physical delivery of goods or securities; a client and the broker exchange the difference in the initial price of the trade and its value when the trade is unwound or reversed.

How do cfds work?

A contract for difference (CFD) allows traders to speculate on the future market movements of an underlying asset, without actually owning or taking physical delivery of the underlying asset. Cfds are available for a range of underlying assets, such as shares, commodities, and foreign exchange. A CFD involves two trades. The first trade creates the open position, which is later closed out through a reverse trade with the CFD provider at a different price.

If the first trade is a buy or long position, the second trade (which closes the open position) is a sell. If the opening trade was a sell or short position, the closing trade is a buy.

The net profit of the trader is the price difference between the opening trade and the closing-out trade (less any commission or interest).

Why are cfds illegal in the U.S.?

Part of the reason that cfds are illegal in the U.S. Is that they are an over-the-counter (OTC) product, which means that they don't pass through regulated exchanges. Using leverage also allows for the possibility of larger losses and is a concern for regulators.

The commodity futures trading commission (CFTC) and the securities and exchange commission (SEC) prohibit residents and citizens of the U.S. From opening CFD accounts on domestic or foreign platforms.

Is trading cfds safe?

Trading cfds can be risky, and the potential advantages of them can sometimes overshadow the associated counterparty risk, market risk, client money risk, and liquidity risk. CFD trading can also be considered risky as a result of other factors, including poor industry regulation, potential lack of liquidity, and the need to maintain an adequate margin due to leveraged losses.

Can you make money with cfds?

Yes, of course, it is possible to make money trading cfds. However, trading cfds is a risky strategy relative to other forms of trading. Most successful CFD traders are veteran traders with a wealth of experience and tactical acumen.

The bottom line

Advantages to CFD trading include lower margin requirements, easy access to global markets, no shorting or day trading rules, and little or no fees. However, high leverage magnifies losses when they occur, and having to pay a spread to enter and exit positions can be costly when large price movements do not occur. Indeed, the european securities and markets authority (ESMA) has placed restrictions on cfds to protect retail investors.

Get your CFD trading
started with the basics.

CFD & indices basics

WHAT ARE cfds?

CFD stands for contracts for difference, with the difference being between where you enter a trade and where you exit. Simply put, when the position is closed, you’ll receive the profit or incur the loss on that difference.

If you have bought gold for $1600, you do not have an ounce of gold that you can hold, rather you bought a contract from axi that will increase in value if the gold price increases. For example, when you trade a CFD you’re speculating on the movement of the price only, rather than traditional stocks where you purchase a physical asset. When combined with leverage, cfds give you quick, cost-effective and flexible exposure to a host of global financial products.

WHY TRADE CFDS?

If you’re looking to invest in the price movements of instruments, rather than purchasing physical assets

To take advantage of swift fluctuations in the underlying instrument or security. This is popular with short-term investors looking to profit from intra-day and overnight movements in the market

To take advantage of leverage and spread capital across a range of different instruments rather than tie it up in a single investment (note: this approach can increase risk)

As a risk management tool to hedge exposure

EXAMPLE GOLD CFD TRADE

The price of gold is measured by its weight. Therefore, the price shows how much it costs for one ounce of gold in US dollars. For example, if the gold (XAUUSD) price is $1600.00, it means an ounce of gold is traded at US$1600.00. Similarly, the price of silver is its price per ounce in USD. If the silver (XAGUSD) price is 28.00, it means that an ounce of silver is traded at US$28.00.

If you have bought gold for $1600, you do not have an ounce of gold that you can hold, but you rather have the obligation to buy XAU at US$1600. When you close your position, you sell the XAU and close your exposure. If you sell it for $1605.00, you have made profit of $5 for every ounce (unit) of gold in your contract. The same concept applies to silver trading. If you have bought silver (XAGUSD) for $28.00 and sell at $28.50, you would have made a profit of $0.50 for every ounce of silver in your contract.

INDEX FUTURES ROLLOVERS EXPLAINED

Axi’s index contracts are based on the relevant futures exchange price. Futures contracts expire because they are related to a definitive date. There are many months traded and the forward prices can be higher or lower depending on market conditions.

In order to remove final day volatility, at axi we switch from using the front month contract into the second month’s contract one trading day prior to the exchange expiry.

An example of this is when the australian SPI contract for march expires. The june price needs to be used and the price on the axi MT4 platform may increase or decrease depending on the value of the june contract relative to the march contract. This is obviously not a price rise or fall in the SPI but just a move to a new reference price, therefore no profit or loss will be incurred as a result.

In order to ensure this does not affect our clients, a cash adjustment needs to be made. This is explained in the following examples:

SPI march closes at 5050/5051 and SPI june opens at 5000/5001

Your position: 10 buy contracts

If your position is a buy, it closes on the old bid price of 5050 and reopens on the new ask price of 5001. Because you are in a buy and the new market price has decreased, your open trade P&L has made a loss. As a result you will receive a positive adjustment amount in your swap column equal to the difference of the old bid and the new ask.

You will receive (5050-5001)*10 contracts = $490AUD

Your position: 10 sell contracts

If your position is a sell, it closes on the old ask price of 5051 and reopens on the new bid price of 5000. Because you are in a sell and the new market price has decreased, your open trade P&L has made a gain. As a result you will receive a negative adjustment amount in your swap column equal to the difference of the old ask and the new bid.

You will receive (5051-5000)*10 contracts = -$510AUD

HSI future – close of business on the day 3rd to last business day of the contract month.

CAC40 future – close of business on the day before the 3rd friday of expiry month.

DAX30 future – close of business on the day before the 3rd friday of expiry month.

S&P future – close of business on the wednesday the week before the 3rd friday of expiry month.

FT100 future – close of business on the day before the 3rd friday of expiry month.

DJ30 future – close of business on the wednesday the week before the 3rd friday of expiry month.

SPI200 future – close of business one day before the 3rd thursday of expiry month.

OIL ROLLOVER EXPLAINED

Axi’s oil contract (WTI) is based on the ICE futures price (front-spot month). This futures price is the largest price benchmark for the global oil industry.

Futures contracts expire because they are related to a definitive date. There are many months traded and the forward prices can be higher or lower depending on market conditions.

In order to remove final day volatility, at axi we switch from using the front month contract into the second month’s contract one trading day prior to the exchange expiry.

An example of this is when the WTI (west texas intermediate) contract for september expires. The october price needs to be used and the price on the axi MT4 platform may increase or decrease, depending on the value of the october contract relative to the september contract. This is obviously not a price rise or fall in oil but just a move to a new reference price and therefore no profit or loss will be incurred as a result.

In order to ensure this does not affect our clients, a cash adjustment needs to be made. This is explained in the following examples:

Example 1: long position of 1000 barrels

September contract closes @ $110.00

October contract opens @ $111.38

Cash adjustment of – $1,380 is made on account

Profit of $1,380 is made on open position

Net financial effect is zero.

Example 2: short position of 2000 barrels

September contract closes @ $110.00

October contract opens @ $111.38

Cash adjustment of +$2,760 is made on account

Loss of $2,760 is incurred on open position

Get your CFD trading
started with the basics.

CFD & indices basics

WHAT ARE cfds?

WHY TRADE CFDS?

If you’re looking to invest in the price movements of instruments, rather than purchasing physical assets

To take advantage of swift fluctuations in the underlying instrument or security. This is popular with short-term investors looking to profit from intra-day and overnight movements in the market

To take advantage of leverage and spread capital across a range of different instruments rather than tie it up in a single investment (note: this approach can increase risk)

As a risk management tool to hedge exposure

EXAMPLE GOLD CFD TRADE

INDEX FUTURES ROLLOVERS EXPLAINED

In order to remove final day volatility, at axi we switch from using the front month contract into the second month’s contract one trading day prior to the exchange expiry.

In order to ensure this does not affect our clients, a cash adjustment needs to be made. This is explained in the following examples:

SPI march closes at 5050/5051 and SPI june opens at 5000/5001

Your position: 10 buy contracts

You will receive (5050-5001)*10 contracts = $490AUD

Your position: 10 sell contracts

You will receive (5051-5000)*10 contracts = -$510AUD

HSI future – close of business on the day 3rd to last business day of the contract month.

CAC40 future – close of business on the day before the 3rd friday of expiry month.

DAX30 future – close of business on the day before the 3rd friday of expiry month.

S&P future – close of business on the wednesday the week before the 3rd friday of expiry month.

FT100 future – close of business on the day before the 3rd friday of expiry month.

DJ30 future – close of business on the wednesday the week before the 3rd friday of expiry month.

SPI200 future – close of business one day before the 3rd thursday of expiry month.

OIL ROLLOVER EXPLAINED

Axi’s oil contract (WTI) is based on the ICE futures price (front-spot month). This futures price is the largest price benchmark for the global oil industry.

Futures contracts expire because they are related to a definitive date. There are many months traded and the forward prices can be higher or lower depending on market conditions.

In order to remove final day volatility, at axi we switch from using the front month contract into the second month’s contract one trading day prior to the exchange expiry.

In order to ensure this does not affect our clients, a cash adjustment needs to be made. This is explained in the following examples:

Example 1: long position of 1000 barrels

September contract closes @ $110.00

October contract opens @ $111.38

Cash adjustment of – $1,380 is made on account

Profit of $1,380 is made on open position

Net financial effect is zero.

Example 2: short position of 2000 barrels

September contract closes @ $110.00

October contract opens @ $111.38

Cash adjustment of +$2,760 is made on account

Loss of $2,760 is incurred on open position

How to trade cfds

Interested in trading cfds with IG?

Call +61 3 9860 1799 or email helpdesk.En@ig.Com to talk about opening a trading account. We’re here 24 hours a day, from 8am saturday to 10pm friday (UK time).

CFD trading steps

Here are the six steps you’ll need to follow to start CFD trading:

Learn how cfds work

To get started, you can take a free online course through IG academy or read our one-page introduction: what is CFD trading and how does it work?

Create and fund an account

Applying for a CFD trading account is a straightforward process, and usually takes just a few minutes to complete.

Once the details you provide have been verified, you’ll need to fund your account. You can add funds via credit card or debit card.

If you’d prefer to build your market confidence in a completely risk-free environment, you can open a demo account and practise with $20,000 of virtual funds.

Build a trading plan

A trading plan can help you make better decisions under pressure because it defines your ideal trade, desired profit, acceptable loss, and risk management strategies.

Find an opportunity

Once you’ve opened and funded your account, it’s time to find your first trade. With IG, you’ll be able to go long and short on over 17,000 markets, including:

With so many markets to choose from, identifying your first trade can often seem daunting. That’s why we offer a range of tools and resources to help you decide on the deal that’s right for you:

Spot market moves at a glance with our essential charts, and interpret what they mean using our range of technical analysis tools

Upgrade to our advanced prorealtime charting package and gain access to automated dealing, as well as even more indicators. It’s free to use if you transact at least four times in a given month, otherwise there’s a $40 per month fee*

Respond instantly to key market moves with alerts, which can be set to trigger when the market hits a certain level or moves by a set amount

Learn from our team of market experts with up-to-the-minute analysis and live video, as they explore emerging patterns and trends worth watching

Access a real-time reuters feed in the platform, and filter the latest news stories by market, article type and more

Be alerted to key trends and potential opportunities and explore concise, actionable analysis with third-party signals

View our economic calendar and gain a full overview of macro and microeconomic events with the potential to move markets

Review dedicated market data for a breakdown of trader sentiment, the latest company figures and real-time streaming prices

Identify shares you may want to trade with the market screener, according to company fundamentals, location, sector and more

Choose your CFD trading platform

With IG, you’ll have access to several trading platforms:

Web-based platform

Mobile trading apps

Metatrader 4

Advanced platforms

These can all be tailored to suit your trading style and preferences, with personalised alerts, interactive charts and risk management tools.

Open, monitor and close your first position

Your profit or loss is calculated by multiplying the amount the market moved by the size of your trade in pounds per point. Here’s an illustrated example of how this works:

When placing a trade, there are a few things to keep in mind:

Buy and sell prices

You’re always offered two prices based on the value of the underlying instrument you are trading: the buy price (the bid) and the sell price (the offer).

Number of contracts

When trading cfds, you need to decide how many contracts you want to trade. Each market has its own minimum number of contracts: the FTSE 100’s, for instance, is one contract.

Stops and limits

Basic: closes you out as near as possible to the price level you choose. A basic stop may be affected by ‘gapping’ overnight or in times of high volatility

Guaranteed: closes you out at the level you requested, regardless of whether the market gaps. This will incur a small premium, but only if the stop is triggered

Trailing: moves with your position when the market moves in your favour, but locks in as soon as the market starts to move against you

Limits, meanwhile, do the opposite, closing your position when the market moves a specified distance in your favour. Limits are a great way to secure profits in volatile markets.

CFD trading examples

At first glance, CFD trades can seem more confusing than traditional trades – so here are some examples to guide you through opening and closing positions.

BHP has a sell price of $27.59, and a buy price of $27.60.

So if BHP has a margin factor of 5%, then your margin would be 5% of the total exposure of your trade (2000 share cfds x $27.6 = $55,200), which is $2760.

If your prediction is correct

You reverse your trade to close a position, so you sell your 2000 cfds at a price of $29.60.

Just remember that you’ll also need to pay a commission fee and any overnight funding charges. Please refer to your tax adviser for tax matters.

What is CFD trading?

At iforex you have the opportunity to trade cfds and take advantage of price movements without actually owning the instrument that you trade.

Confused? Letвђ™s start at the beginning: C ontract f or D ifference (CFD) is a contract between a buyer and a seller to settle on the difference in value of a financial asset or instrument from the time the contract is bought until it is sold or vice versa.

Need a visual explanation?

Take a quick look at this informative video:

Good to know:
when you open a CFD deal, you buy вђ˜contractsвђ™. E.G: one contract is the price of 1 barrel of oil / 1 ounce of gold / 1 share, etc.

Types of CFD products

Here are the three main types of CFD products that you can trade online.

By trading a share CFD, you can invest in the shares of leading brands such as facebook, adidas, apple, BMW and google, without actually owning the shares. Itвђ™s a fast and simple way to take advantage of the share price of the worldвђ™s leading companies.

Letвђ™s say you want to invest in oil. By trading cfds, you can invest in oil without having to buy actual barrels and keep them in your back yard. There are many other commodities you can trade including gold, corn, platinum, coffee, silver and others.

An index follows and measures the performances of a specific group of stocks from a specific stock exchange. Thanks to CFD trading, individuals can now easily invest in the worldвђ™s most popular indices such as the dow jones, NASDAQ, DAX and nikkei.

For the full list of our available CFD instruments, visit our trading conditions page.

The key features of CFD trading

Cfds allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions). This means you can trade even when the price of an instrument goes down.

At iforex you can trade cfds with leverage, meaning you can open large deals with a relatively small investment.

You can trade anywhere and anytime using advanced platforms for web and mobile.

You donвђ™t need to own - or store - the products you invest in.

How to choose a CFD instrument?

Iforex offers a wide variety of CFD instruments you can invest in, so how do you choose? Many traders prefer to start with instruments they know well or can easily obtain information about. More experienced traders sometimes choose to diversify their trading portfolio, in order to maximize their trading potential and to optimize their risk-management.

How to open your first CFD deal

Are you ready to open your first CFD deal? Great! You can do so in three simple steps.

Choose an instrument
letвђ™s say you want to trade crude oil. If the price of one barrel of oil is $50, one CFD on oil will also be worth $50

Choose your deal size
by using leverage you can buy up to 200 times more oil with your investment. For example, with a $100 investment, you can buy $20,000 worth of oil cfds (in this example 400 contracts), using 200:1 leverage
$100 X 200 = $20,000.

Choose direction
when you trade cfds, you can open trades even when you think prices will go down. If, for example, you think that oil prices will drop, open a вђњsellвђќ deal. You did? Great. Whatвђ™s next?

Close your deal and collect the profit
letвђ™s say the price of oil has dropped to $49 and you decide to close your вђњsellвђќ deal.

Learn cfd trading

Start trading cfds with avatrade
enjoy the benefits of an award-winning broker today!

What is a CFD?

Contracts for difference (cfds) are popular over the counter (OTC) financial derivative products which enable you to trade on the price movement of financial assets like currency pairs indices futures, commodity futures, shares and exchange traded funds.

With cfds, you can trade freely on price fluctuations 24/7, without actually owning the underlying asset or acquiring any rights or obligations in relation to the underlying asset. The main benefit of trading cfds is the flexibility to trade against the price movements without actually buying or selling the physical instrument. That means never having to take ownership of barrels of oil or blocks of gold.

Avatrade’s cfds derive their price from the underlying asset, so for example, if the price of facebook stock or gold goes up, the CFD price which tracks it will go up too. You can trade cfds if you believe the price of a financial instrument is likely to go up in value (strengthen), and if you think it is likely to go down (weaken). Your profit or loss in online CFD trading is determined by the difference between the price you buy at and the price at which you sell, minus your spread, which is the broker’s fee.

CFD methods

There are various trading strategies that are often used when trading cfds, that even the most unskilled trader can understand. These decisions involve a number of trading methods and the most popular are the long vs. Short

Long position
A long position in trading cfds is when a trader places a BUY trade. This means he expects the asset will rise or see an increase in its value over time. He will effectively BUY at a low price, and then SELL once the price rises.

Short position
the short position occurs when the trader feels there will be a decline in the assets value and a ‘sell’ is selected, however, there is an intention from the trader to buy the contract back at a later stage. So he would profit from selling the asset at a higher price and then buying it back once the price has fallen. This might seem more of a complicated idea to grasp, but it comes naturally with practice. It also means that unlike when buying stocks you can trade cfds even when markets are falling. This is a huge benefit to cfds.

Start trading cfds with a regulated broker at avatrade today!

Why trade cfds with avatrade?

Take your pick from a huge selection of commodities, stocks and indices with some really competitive conditions and dedicated support.

A selection of powerful trading platforms, including metatrader 4 and metatrader 5 platforms for desktop, tablet & mobile

Cutting-edge web trading platform (no download and installation required)

Trade leading US, european & asian stocks trade as cfds

Go long or short – trade your view on the market

Get leverage of up to on CFD trading

Trade on the move with our new avatradego app with unique risk-limiting tool avaprotect

Both manual and automated trading platforms available

What are the advantages of cfds?

No exchange fees – you do not own the underlying asset and do not acquire any rights or obligations in relation to the underlying asset. It is a contract between the client and avatrade, and you pay no commission.

Leverage trading – you need significantly less capital to open a trade in comparison to owning the underlying asset. Leverage is a double-edged sword, of course, as it can significantly increase your losses as well as your gains.

Multi-vehicle investment – the ability to trade a range of instruments from the same trading platform.

Trade on both rising and falling markets – open either short or long positions according to the market conditions and your trading strategy.

Hedging potential – A buffer for your trades if the trade is not going in the intended direction, you can open the equivalent position in the opposite direction reduce the risks.

What are cfds infographic

Start trading cfds with a regulated broker at avatrade today!

Still not entirely sure? Take a look at the avatrade reviews by our clients!

How to trade cfds

Find out more about contract for difference (CFD) trading with city index.

How to place a CFD trade

With the ability to trade on falling markets, use leverage and access thousands of instruments, some trading 24 hours a day, investors are taking advantage of the versatility of cfds as part of their portfolio.

CFD trading steps

Choose a market
decide which market you want to trade on. You can get trading inspiration through our fundamental and technical analysis research portal

Decide to buy or sell
click 'buy' if you think the price will increase in value or 'sell' if you think the market will fall in value

Select your trade size
choose how many cfds you want to trade. 1 CFD is the equivalent of 1 physical share in equity trades

Add a stop loss
A stop loss is an order to close your position out at a certain price if it moves too far against you

Monitor and close your trade
once you have placed your trade, you will see your profit/loss update in real time at the top of the screen. You can exit your trade by clicking the close trade button

CFD trading explained

Choosing a market

At city index, we offer cfds on thousands of individual markets including shares, indices, currencies, commodities, interest rates and bonds, allowing you instant exposure to major global markets including the UK, US, europe, asia, australia and new zealand.

With so much choice, it is important to find a trading opportunity that suits you. You can use the research tools provided on the trading platform to help you identify trading opportunities that match your trading style.

Use the search function on the platform or app to search and select your market. Learn more about our research tools here.

Decide to buy (go long) or sell (go short)

Once you have chosen a market, you need to know the current price. You can do this this by bringing up a trading ticket in the platform.

CFD markets have two prices. The first price quoted, is the sell price (the bid), and the second price is the buy price (the offer). The difference between the two is known as the spread. The price of your CFD is based on the price of the underlying instrument.

If you believe a market price will go up, you buy that market (known as going long). If you believe it will fall, you sell the market (going short).

Select your trade size

With CFD trading you select the number of cfds you wish to trade.

With equity trades, 1 CFD is equivalent to 1 share. When trading indices, FX, commodities, bonds or interest rates, the value of 1 CFD varies depending on the instrument. You can see which number you are trading on by looking up the 'tick value' in the instrument's market information sheets. Cfds are traded in the base currency of the market.

CFD trading is a leveraged product which means you only need to have a small percentage of the overall trade value, known as margin, in your account in order to open the trade. Generally speaking, the larger the value of your trade, the more margin required. It is important that you have sufficient funds in the account to place the trade. The margin calculator in the trading platform will automatically calculate your initial margin for you.

Add stop and limit orders

Before you place your trade, it's important to consider your risk management strategy.

A key risk management technique is to place an order such as a stop loss that will automatically close the trade if the market reaches a certain level.

A stop loss order is an instruction that allows the platform to close your open position once it reaches a specific level set by you. This will, as the name suggests, be at a price below the current market level and be triggered on losing trades to help minimise losses.

A limit order is an instruction to close out a trade at a price that is better than the current market level and is used to help lock in profit targets.

Standard stop losses and limit orders are free to place and can be placed in the dealing ticket when you first place your trade or once your trade is open.

Monitor your trade

Having placed your trade and any stops or limits, your profit and loss of your CFD trade will now fluctuate with each move in the market price.

You can track market prices, see your profit/loss update in real time and add new trades or close existing trades from your computer or by using our trading app on your smartphone or tablet.

Closing your trade

Once you are ready to close your trade, you need to do the opposite trade to the opening trade or select the 'close position' option within the positions window.

By closing the trade, your net open profit and loss will be realised and immediately reflected in your account cash balance.

This will be done for you if your stop loss or limit order has not been triggered.

CFD examples

Review the CFD trading examples to see how CFD trading works in practice.

Quick links

What is CFD trading?

How to trade cfds

CFD trading examples

Costs of CFD trading

Risks of CFD trading

CFD trading vs shares dealing

CFD markets

What is CFD leverage?

Margin and leverage

Start CFD trading

Trade cfds on over 5,000 markets

You might also be interested in.

Pricing and charges

View spreads, margins and commissions for city index products

Trading platforms

Take control of your trading with powerful platforms and tools

Economic calendar

View upcoming trading opportunities for the weeks ahead

Cfds are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading cfds with this provider. You should consider whether you understand how cfds work and whether you can afford to take the high risk of losing your money.

* spread betting and CFD trading are exempt from UK stamp duty. Spread betting is also exempt from UK capital gains tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

† 1 point spreads available on the UK 100, germany 30, france 40 and australia 200 during market hours on daily funded trades and cfds (excluding futures).

‡ voted “best trading platform”, “best mobile application” and “best spread betting provider” at the OPWA awards 2019. Voted “best professional trading platform” and “best spread betting provider” at the 2019 shares awards. Voted “best CFD provider” at the ADVFN international financial awards 2020.

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So, let's see, what we have: follow six steps to easily start trading cfds. See CFD trading examples and find out what you need to do to open and close positions. At learn cfd trading