Want to open a CFD trading account? Learn the basics before you start.
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Learn more about CFDs
Learn more about CFDs, leverage and risk management with IG's Chief Market Strategist.
Ready to take the quiz?
Once you feel comfortable with CFDs, leverage and how to manage risk, simply return to the suitability assessment so we can process your application as soon as possible. Please ensure you choose the right quiz for your device.
What are CFDs?
Contracts for difference (CFDs) allow you to open a contract for the difference in price of an asset, from the point of opening to when you close.
- Importantly, CFDs are a leveraged product. This means you only have to put down a small deposit for a much larger market exposure.
- Leverage comes with significant benefits and risks: your investment capital can go further, but you can also lose more than your initial deposit.
CFD trading allows you to take a position on the future value of an asset whether you think it will go up or down. While this means the product is very flexible, it also requires a high level of risk management.
It's important to remember you're trading contracts with IG, not physically trading in the underlying market. This means you don’t actually own any assets.
How it works
We set a price for a contract based on the underlying market, which you can buy or sell.
With each market you are given a 'buy' and 'sell' price either side of the underlying market price. You can trade on a market to go up (known as 'buying' or 'going long'), or you can trade on it to go down (known as 'selling' or 'going short').
View shares example
Buying BHP Billiton: detailed
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CFD
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| Underlying market/value |
BHP Billiton
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| Our price |
18.39/18.40
|
| Trade | Buy at 18.40 |
| Trade size |
1,000 shares
|
| Margin required | Margin = Number of shares x share price (mid price) x margin rate (5%) 1,000 x A$18.395 x 5% = A$919.75 |
| What happens next? |
At 4.15pm the market closed at 18.50, which is the price our funding is calculated at. It rises again the next day, reaching 19.04 (the sell price).
|
| Funding | Funding = (One-month bank bill swap rate + 3%) x (number of shares x share price) / 360 (1.9% + 3%) x (1,000 x A$18.50) / 360 = A$2.52 |
| Underlying market | 19.04/19.05 |
| Close | Sell at 19.04 |
| Gross profit | 19.04 - 18.40 = 64c (Multiplied by 1,000 shares) Gross profit = A$640 |
| Commission |
Commission = Value of position x 0.10% (Minimum $8) (1,000 x 18.40) x 0.10% = $18.40 (1,000 x 19.04) x 0.10% = $19.04 Total commission = $37.44 |
| Total costs | Total costs = Funding + commissions A$2.52 + A$37.44 = A$39.96 |
| Net profit | $600.30 profit subject to tax |
| What if... | If the underlying market fell to 17.60 instead (the sell price): 17.60 – 18.40 = - 80c (-80c x 1,000 shares) - ($2.52 + 36) Net loss = $838.52 |
View forex example
Buying AUD/USD: detailed
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CFD
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|
| Market |
Spot FX AUD/USD
|
| Price |
0.76912 / 0.76920
|
| Trade | Buy at 0.76920 (7,692.0 points) |
| Deal size | 1 standard contract Equals US$10 per point |
| Margin required | Margin = Number of contracts x value of one contract x current level (mid price) x margin rate (0.5%) 1 x US$10 x 7,691.6 x 0.5% = US$384.58 |
| What happens next? |
AUD/USD climbs 150 points into the next day. This position is held through 10pm London time, when funding is calculated.
|
| Funding | Funding = size x (tom-next rate + IG's charge for holding positions overnight which is no more than 0.0022% per day) US$10 x -0.96 = -US$9.60 (so you would actually receive US$9.60 in this instance) |
| Price | 0.78412 / 0.78420 |
| Close | Sell at 0.78412 (7,841.2 points) |
| Gross profit | 7,841.2 - 7,692.0 = 149.2 points Each contract is worth US$10 per point (so US$10 x 149.2 points) Gross profit = US$1,492 |
| Costs | 0.8 point IG spread (included above) Funding adjustment = US$9.60 (a credit to your account)
|
| Net profit | US$1,501.60 |
| What if... | What if the market dropped 150 points instead (with a spread of 0.8 points): US$1,508 - US$9.60 Net loss = US$1,498.40 |
View indices example
Buying the Australia 200: detailed
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Cash CFD
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| Underlying market/value |
ASX 200 JUN15 Future
|
| Our price | Australia 200 Cash 5500.5/5501.5
|
| Trade | Buy at 5501.5 |
| Deal size | 1 standard contract Equals A$25 per point
|
| Margin required | Margin = Number of contracts x value of one contract x index level (mid price) x margin rate (0.5%) 1 x A$25 x 5,501 x 0.5% = A$687.63 |
| What happens next? |
The market rallies dramatically, moving up 149 points by 4.50pm, when funding is calculated. It drops back a little overnight, down 10 points from 4.50pm the previous day.
|
| Funding | Funding = (One-month bank bill swap rate + 3%) x (size of position) / 360 (1.9% + 3%) x (5,650 x A$25) / 360 = $19.23 |
| Underlying market |
5639.5 / 5640.5
|
| Close | Sell at 5639.5 |
| Overall market movement & profit/loss | 5639.5 – 5501.5 = 138 Each contract is worth A$25 per point (so A$25 x 138 points) Gross profit = A$3,450 |
| Costs | 1-point IG spread (included above) Funding cost: A$19.23 |
| Net profit | A$3,430.77 net profit subject to tax |
| What if... | If the market dropped 139 points instead (with a spread of 1 point): (-139 - 1) x (A$25) - A$18.24 Net loss = A$3,518.24
|
View commodities example
Buying Spot Gold: detailed
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CFD
|
|
| Market and price |
Spot Gold 1248.06/1248.46
|
| Trade | Buy at 1,248.46 |
| Trade size |
1 standard contract Equals US$100 per point |
| Margin required | Margin = Number of contracts x value of one contract x level of spot gold (mid) x margin rate (0.7%) 1 x 1,248.26 x US$100 x 0.7% = US$873.78 |
| What happens next? |
Spot Gold rallies 10 points into the next day. This position is held through 10pm London time, when funding is calculated.
|
| Funding | Funding = size x (tom-next rate + IG's charge for holding positions overnight which is no more than 0.0022% per day) US$100 x 0.12 = US$12 |
| Price |
1258.06 / 1258.46
|
| Close | Sell at 1,258.06 |
| Gross profit | 1,258.06 - 1,248.46 = 9.6 Value per point = US$100 9.6 x US$100 = US$960
|
| Costs | 0.4 point IG spread (included) Funding cost = US$12
|
| Net profit | US$948 |
| What if... | If the market dropped 10 points instead (with a spread of 0.4 points): US$1,040 + US$12 Net loss = US$1,052 |
What is leverage?
Leverage enables you to gain a large exposure to a financial market while only tying up a relatively small amount of your capital. In this way, leverage magnifies the scope for both gains and losses.
Is leveraged trading risky?
Even though you only put up a relatively small amount of capital to open a position, your profit or loss is based on the full value of the position.
Therefore, the amount you gain or lose could be relatively large compared to your initial outlay.
What is margin?
Margin trading gives you full exposure to a market using only a fraction of the capital you’d normally need.
Margin is the amount of money you need to open a position, defined by the margin rate.
CFD are leveraged product, you don’t need to pay the full value of your exposure in order to trade. Instead, you’ll only need to put up a fraction of your total exposure to open your position.
There are two types of margin to consider:
Initial margin
The initial margin is the minimum amount you’ll need to put up to open a position. It is sometimes called the deposit margin, or just the deposit.
Maintenance margin
The maintenance margin, also known as variation margin, is extra money that we might need to request from you if your position moves against you. Its purpose is to ensure you have enough money in your account to fund the present value of the position at all times – covering any running losses.
Why IG?
We are a trusted, global provider of CFDs, with nearly 313,000 clients all over the world.
We’re regulated by ASIC and segregate client funds from our own accounts.
As the market leader in Australia,1 we’re committed to maintaining our own high standards through our commitment to transparency and constant innovation.
Advanced traders can benefit from our premium-level service, including DMA and API solutions.
Ready to take the quiz?
Once you feel comfortable with CFDs, leverage and how to manage risk, simply return to the suitability assessment so we can process your application as soon as possible. Please ensure you choose the right quiz for your device.
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1 By primary relationships, Investment Trends August 2017 CFD Report & December 2017 FX Report.
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