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.

Choosing a market for CFD trading

Lesson 2 of 6

Trading CFDs on shares

Share CFDs tend to be a more accessible way to deal on shares compared to traditional trading, particularly in terms of the way you take a position and the costs involved.

The mechanics of dealing

With traditional shares trading you buy and sell the shares outright for a particular market price. Share CFDs, however, do not involve owning the actual share and are instead traded in standardised contracts. The contract size is usually representative of one share in the company you are trading. Eg to open a position that mimics buying 500 shares of Apple, you’d buy 500 Apple CFD contracts.

CFD trades are always in the same currency as the underlying asset. So since Apple is a US stock, the CFD price is quoted in dollars. If dollars aren’t the base currency on your account, there may be a currency conversion charge to change any profit you make into your usual currency. At IG our standard charge is 0.5%, and we’ll normally make the conversion automatically.

The costs

In traditional trading, you generally go through a broker who buys or sells the shares on your behalf. Your broker will trade the shares at the current buy or sell price available in the underlying market and then charge a commission, based on the value of the shares.

When trading share CFDs, the costs of dealing are designed to mimic trading in the underlying market. Providers will match the buy and sell prices of the underlying market and charge a small commission fee when you open and close a trade.

Here are some examples of the standard IG commission fees, per region, for share CFDs:

Market Commission per side Min charge (online) Min charge (phone)
UK (FTSE 350) 0.10% £10 £15
UK (non-FTSE 350) 0.35% £10 £15
US 2 cents per share $15 $25
Euro 0.10% €10 €25


You can find information for all markets in our product details.

Example

For example: Let’s say A plc – a major UK stock – is trading in the underlying market at a sell price of 2015 and a buy price of 2017 (equivalent to £20.15 and £20.17). Your provider offers the shares at market price, but charges 0.1% commission on the full value of the position.

So if you decided to ‘buy’ 1000 shares as a CFD, the final charge would be calculated as 1000 x £20.17 x 0.1% = £20.17

Going short

When trading CFDs it’s generally easier to go short on shares than it is via traditional trading – again because you are speculating on the share price, rather than physically buying and selling the shares themselves.

In CFD trading, you can simply open a ‘sell’ position on your chosen market, which is just as straightforward as buying. To profit from a falling stock price in traditional shares trading, you would have to commission a broker to borrow and then sell the shares on your behalf. You can find out more about that process in the ‘How trading works’ course.

Leverage vs non-leverage

With share CFDs, your outlay to take a position is much lower than it would be if you bought shares in the traditional way, as CFDs are a leveraged product. This means that when you place a trade equivalent to buying, say, £1000 of shares, you might only need to put up a deposit – also known as margin – of 5%, or £50, rather than the full sum. You can find out more about leverage in the ‘Orders, execution and leverage’ course.

However, it’s important to remember that your potential loss is the same whether you trade the underlying shares or place a CFD trade. In the example above, if the worst happens and the share becomes completely worthless, your maximum possible loss is £1000 in both cases.

Lesson summary

  • When you trade share CFDs, you buy or sell a certain number of contracts in your chosen company and this mimics buying shares in the underlying market
  • Your deal will normally be in the same currency as the underlying asset, meaning you may have to convert any profits to your base currency
  • When you trade share CFDs, the cost of dealing is a small commission fee when you open and close your position
  • As you never actually own the shares, CFD trading enables you to profit from falling markets as well as rising ones
  • Because CFDs are a leveraged product, you can put up a fraction of the total cost of the shares and gain the same exposure
Lesson complete