Learn more about CFDs


Want to open a CFD trading account? Learn the basics before you start.

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

 
CFD
Underlying market/value
BHP Billiton
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 + 2.5%) x (number of shares x share price) / 360

(1.9% + 2.5%) x (1,000 x A$18.50) / 360 = A$2.26

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$2.26 + A$37.44 = A$39.70

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) - ($2.26 + 36)

Net loss = $838.26

 

View forex example

Buying AUD/USD: detailed

 
CFD
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 + admin fee of 0.3% pa)

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

 
Cash CFD
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 + 2.5%) x (size of position) / 360

(1.9% + 2.5%) x (5,650 x A$25) / 360 = $17.26

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$17.97

Net profit

A$3,432.74 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$17.26

Net loss = A$3,517.26

 

View commodities example

Buying Spot Gold: detailed

 
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 + admin fee of 0.3% pa)

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.

Learn more about leverage

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 185,800 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 and range of professional trading tools, 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.

 

Contact us

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helpdesk.en@ig.com

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