3. Opening a CFD position
When you’ve decided which market you want to trade, you’re ready to place a deal. The first thing to decide when placing a deal is whether you want to go long or short. Say, for example, that you want to trade the FT100. If you think its value will fall, you sell (or go short); if you think it will climb, you buy (or go long).
When opening a position, 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 dealing: 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 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’s, for instance, is one contract.
In this case, one contract is equivalent to A$10 per point, but this also varies from market to market. A$10 per point means you’ll make or lose A$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 certain 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 specify. 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 certain distance in your favour. Limits are a great way to secure profits in volatile markets.