How to trade CFDs

Introduction to DMA

Direct market access (DMA) trading enables you to trade directly into the order books of major equity exchanges, and offers greater transparency and flexibility than regular over-the-counter (OTC) trading. DMA is also known as 'Level 2' or 'L2' trading.

Benefits of DMA

DMA trading has a number of benefits, some of which can be especially valuable to advanced traders.

With DMA trading you can:

  • View significantly extended pricing data from a number of international exchanges
  • Trade inside the market spread that would be offered over the counter (OTC)
  • Gauge the market’s liquidity
  • Place orders during the popular and potentially profitable pre- and post-trading auctions

DMA platforms

IG offers a choice of two DMA trading platforms:

OUR WEB-BASED PLATFORM AND MOBILE APPS

You can get Level 2 access through our regular trading platform by activating ‘DMA Equities’ on your existing CFD account. The only requirement is that your account balance is greater than $2000. If this is the case, simply activate DMA in the 'Settings > Preferences' page of the 'My Account' section. You’ll also need to update your data feeds to receive L2 pricing data from the various exchanges.

L2 Dealer

L2 Dealer is a dedicated DMA trading platform that was originally designed for IG’s own traders. L2 Dealer is distinct from our main trading platform, and needs to be installed separately. L2 Dealer includes all the functions of our trading platform, and adds an array of sophisticated tools for experienced traders.

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DMA platform examples

Example using OUR WEB-BASED PLATFORM

Let’s say you are interested in placing a long trade on Vodafone Group Plc, currently trading at 177.25/177.30. On the deal ticket you can see the market depth in terms of prices on orders to buy and sell:

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Judging by the weight of existing orders, you decide to place a limit – day order to buy 50 shares inside the market spread at 177.35.

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Your order is acknowledged and you become the best bid in the order book. Our trading platform highlights your order in blue so that you can immediately see your order level.

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Your order can now be seen by other market participants. Once there is sufficient selling interest at your buying level, the order is filled and we immediately replicate this by opening an equivalent CFD position.

You now have an open CFD position long 50 shares of Vodafone Group Plc at $1.77.

Using the L2 Dealer

Let’s say you are interested in placing a long trade on Barclays, currently trading at $1.57/$1.58.

You decide to view Level 2 prices for the stock, using L2 Dealer to see the full market depth of orders to buy and sell.

Judging by the weight of existing orders, you choose to place an order to buy 10,000 shares inside the market spread at $1.58. Your trade is accepted and the order now appears on the trade book.

Your order is initially flagged as waiting to be filled. After a brief wait the order is filled and a CFD is automatically created to reflect your new position. (Of course there is no guarantee that your order will be filled, and you can cancel a live order from the trade book at any time.)

You now have a long position in 10,000 Barclays shares at 158.00, for an initial margin outlay of 10,000 shares x 1.58 x 10% = $1580.00.

Over the following day the market price of Barclays steadily rises and you decide to sell. Using L2 Dealer you see that there is sufficient volume of buying orders for you to sell 10,000 shares at $1.63. You place an order to sell.

Your order is matched and your corresponding CFD position is automatically closed. You have made a profit on the trade of $1.63 - $1.58 x 10,000 shares = $550.

To calculate your overall profit you would also have to take account of the commission on your CFD trade and any interest and dividend adjustments while your CFD position is open.