CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Leverage definition

Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.

In investing, the amount needed to open and maintain a leveraged trade is called the margin. Trading using leverage is sometimes referred to as margin trading.

Leverage is available on several financial products, including CFDs and forex trades. When trading using leverage, the provider will only ask for a fraction of the total value of your position: the rest is effectively lent to you by the provider.

Profits and losses are based on the total size of the position, so the end result of a trade can be much larger than the initial outlay. Losses can end up exceeding the initial deposit.

Leverage example

You want to open a position on AstraZeneca. With IG, you will be margined on the total consideration of the trade.

If the stock is margined at 5%, shares are valued at £45 and you want to trade 500 shares, your margin will be £1125. This is because margin is calculated as

Number of shares x share price x margin percentage

So 500 shares x £45 per share x 5% = 1125.

Therefore, when trading on leverage, in order to obtain an exposure equal to 500 shares in AstraZeneca, you only need to hold a deposit of £1125 instead of buying £22,500 worth of shares in the underlying market.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Professional Clients can lose more than they deposit.

The value of shares and ETFs bought through an IG stock trading account can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.

IG does not issue advice, recommendations or opinions in relation to acquiring, holding or disposing of a CFD. IG is not a financial advisor and all services are provided on an execution-only basis. This communication is not an offer or solicitation to enter into a transaction and shall not be construed as such.

IG is a trading name of IG Limited a company registered at 2702 & 2703 Level 27, Tower 2, Al Fattan Currency House, DIFC, Dubai, United Arab Emirates. IG is authorised and regulated by the Dubai Financial Services Authority (DFSA) under reference No. F001780.

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Leverage definition

Leverage example

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