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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You do not own or have any interest in the underlying asset. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Please consider the Margin Trading Product Disclosure Statement (PDS), Risk Disclosure Notice and Target Market Determination before entering into any CFD transaction with us.
True or false: CFD trading and share trading are the same because both involve buying and owning the underlying asset directly.
Explanation
In CFD trading, you don't own the underlying asset. You trade a derivative. Its value is based on the asset's price. CFDs are also leveraged, meaning you can control a larger position with a smaller deposit. In share trading, you buy and own actual shares, and it's non-leveraged, so your risk is limited to what you invest upfront.
Which of the following best describes leverage in trading?
Explanation
Leverage allows you to control a larger trade with a smaller deposit (margin), boosting both potential profits and potential losses.
True or false: when trading CFD markets, if you think a price is going to fall, you can open a short position to try profit from the drop.
Explanation
Short-selling allows traders to profit from falling market prices. When you open a short position, you're speculating that the price of the asset will go down. If it does, you can close the trade at the lower price and pocket the difference. This is common in CFD trading, where you're trading on price movements rather than owning the asset.
Which of the following best explains why traders use different chart time frames (e.g. 10-minute, 1-hour, 1-day)?
Explanation
Different chart time frames help traders align their analysis with their trading goals. Short-term traders may use shorter time frames to spot quick entry/exit points, while long-term traders use daily or weekly charts to focus on broader trends. Looking at multiple time frames can help confirm signals and improve decision-making.
Why is it important to be careful when selecting position size when placing a trade?
Explanation
Your position size determines how much money you stand to gain or lose per point of market movement. Choosing a size that aligns with your risk tolerance and account size is crucial for managing your exposure and avoiding large losses, especially when trading with leverage.
What does a stop-loss order do?
Explanation
A stop-loss is designed to help manage risk by closing a trade once it hits a loss level you've defined. It limits potential losses if the market moves against you.
What does "spread" mean in trading?
Explanation
A spread in trading is the difference between the buy (offer) and sell (bid) prices quoted for an asset. The spread is a key part of CFD trading, as it is how these derivatives are priced. Many brokers, market makers and other providers will quote their prices in the form of a spread. This means that the price to buy an asset will always be slightly higher than the price to sell.
What are the three main types of trading risk?
Explanation
The three main types of trading risk are market risk (the potential to suffer loss due to movements in market prices), liquidity risk (the potential to suffer loss because you can't buy or sell an asset quickly enough), and systemic risk (the potential for the entire financial system to be affected by an event or series of events).
What is the benefit of trading with a demo account?
Explanation
Trading in a demo account allows you to explore new markets or try out new trade strategies without risking real money.
What happens if you enter an order ticket without setting a stop-loss or limit?
Explanation
Without a stop or limit, the trade can run indefinitely, leaving you vulnerable to sudden market moves.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You do not own or have any interest in the underlying asset. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Please consider the Margin Trading Product Disclosure Statement (PDS), Risk Disclosure Notice and Target Market Determination before entering into any CFD transaction with us.
The value of shares, ETFs and ETCs bought through an IG share trading account can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.
Please ensure you fully understand the risks and take care to manage your exposure.
The information on this website is prepared without considering your objectives, financial situation or needs. Consequently, you should consider the information in light of your objectives, financial situation and needs.
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