Why trade barriers?
Take more control over your risk and leverage on forex, indices, shares, commodities and cryptocurrencies by trading our unique barriers.
Log in to practise taking barrier positions on our trading simulator, or add a barriers and options account straight from My IG.
What are barriers?
- Barriers, also known as barrier options, are a form of leveraged trading which share similarities with CFDs
- They can offer greater exposure with smaller initial deposits than CFDs
- You can put an absolute limit on your risk by choosing your own knock-out level – the ‘barrier’ – which is built into your trade
- Your trade will automatically close out if the underlying price hits your knock-out level
The benefits of barriers
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Barriers vs CFDs: how much you pay up front
Barrier positions can be cheaper to open than similar CFD trades, while giving you access to the same upside. What’s more, you never risk any more on a barrier than the premium you pay to open, where you may be required to pay more margin on a CFD if market conditions change.
Take a look at some similar long trades across barriers and CFDs in the table below, and compare barrier premiums with CFD margins to see the difference in how much you’d pay to open.
- US Crude
- Spot Gold
- DAX
- Dow
- EUR USD
| Barrier | CFD | |
| Market price | 6200/6202.8 | 6200/6202.8 |
| Knock-out level/guaranteed stop (if chosen) | 6140 | 6140 |
| Opening price | 63/65.8 (market price – knock-out) + (premium of 3) | 6200/6202.8 |
| Size | 10 contracts (each $1/point) | 1 contract (each $10/point) |
| Premium/margin to pay | $658 | $6208.8 |
| Max risk | $658 | $658/unknown without guaranteed stop |
| Barrier | CFD | |
| Market price | 1301/1301.3 | 1301/1301.3 |
| Knock-out level/guaranteed stop (if chosen) | 1288 | 1288 |
| Opening price | 13.3/13.6 (market price – knock-out) + (premium of 0.3) | 1301/1301.3 |
| Size | 100 contracts (each $1/point) | 1 contract (each $100/point) |
| Premium/margin to pay | $1360 | $6506.50 |
| Max risk | $1360 | $1360/unknown without guaranteed stop |
| Barrier | CFD | |
| Market price | 12000/12001 | 12000/12001 |
| Knock-out level/guaranteed stop (if chosen) | 11880 | 11880 |
| Opening price | 121.5/122.5 (market price – knock-out) + (premium of 1.5) | 12000/12001 |
| Size | 25 contracts (each €1/point) | 1 contracts (each €25/point) |
| Premium/margin to pay | €3062.50 | €15001.25 |
| Max risk | €3062.50 | €3062.50/unknown without guaranteed stop |
| Barrier | CFD | |
| Market price | 26000/26001.6 | 26000/26001.6 |
| Knock-out level/guaranteed stop (if chosen) | 25740 | 25740 |
| Opening price | 262/263.6 (market price – knock-out) + (premium of 2) | 26000/26001.6 |
| Size | 10 contracts (each €1/point) | 1 contract (each €10/point) |
| Premium/margin to pay | €2636 | €13000.80 |
| Max risk | €2636 | €2636/unknown without guaranteed stop |
| Barrier | CFD | |
| Market price | 11200.0/11200.6 | 11200.0/11200.6 |
| Knock-out level/guaranteed stop (if chosen) | 11088 | 11088 |
| Opening price | 113.2/113.8 (market price – knock-out) + (premium of 1.2) | 11200.0/11200.6 |
| Size | 10 contracts (each $1/point) | 1 contract (each $10/point) |
| Premium/margin to pay | $1138 | $3733.53 |
| Max risk | $1138 | $1138/unknown with out guaranteed stop |
How to trade barriers with IG
- If you think the market value is going to increase, buy a barrier call. If you think it’s going to decrease, buy a barrier put
- Your profit or loss moves in line with the underlying market price:
Profit = the difference between the price at which you bought and the price at which you sold your barrier, multiplied by the trade size and minus the commission charge
Maximum loss = the premium (the price you pay to open the position), multiplied by your trade size
Trade barriers on key markets with a barrier and options account
Forex
Trade currency pairs including EUR/USD and GBP/EUR.
Indices
Take a position on global stock indices.
Commodities
Discover opportunity on popular metals, energies and more.
Shares
Deal on rising and falling stock in major companies worldwide.
Cryptocurrencies
Speculate on a selection of major coins, including bitcoin and ether.
Learn more about barriers
Webinar
If you’re interested in learning more about barriers, join our barriers webinar where our experts take you through the essentials step by step.
Guide
You can also discover the benefits of barriers, learn how to use the deal ticket and see examples of how they work in our free barriers guide.
Barrier options FAQs
How do barriers differ from CFD options?
Unlike barriers – an option which moves one-for-one with the underlying asset’s price and gets ‘knocked out’ if it reaches your chosen knock-out level – CFD options are contracts that give you the right to buy or sell an asset at a certain price on a certain date. This means the pricing is affected by a range of factors, making it more complex than barriers pricing.
How much does the premium cost?
The premium (the price you pay to open the position) is affected by the price of the underlying market, and your chosen knock-out level. It will vary according to the volatility of the underlying market – it may increase if volatility increases, and decrease if volatility decreases. We calculate it as follows:
- Barrier calls: ((underlying IG offer price – knock-out level) + knock-out premium) x size
- Barrier puts: ((knock-out level – underlying IG bid price) + knock-out premium) x size
When do I pay the premium?
You pay the full premium at the start of the trade. You’ll also pay a small commission of 0.1 per lot at the open and close of your position, and a small funding charge if you hold your position overnight.
How and when is the knock-out premium refunded?
The knock-out premium is refunded if you close your trade before it is knocked out. You’ll receive it back to your account, along with your profit or any remaining outlay.
1This is not the case when the knock-out premium changes. If the knock-out premium changes, the price of the barrier option will move by the amount the premium changes.
Options are complex financial instruments and your capital is at risk. Losses may be extremely rapid.
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Options and turbo warrants are complex financial instruments. Trading these financial instruments involves the high risk of losing money rapidly.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Professional clients can lose more than they deposit.
CFD, spread betting, options and turbo warrants accounts are provided by IG Europe GmbH. IG Europe GmbH (a company incorporated in the Federal Republic of Germany and registered in the Frankfurt Trade Register under number HRB 115624 with registered office at Westhafenplatz 1, 60327 Frankfurt, Germany). IG Europe GmbH (Register number 148759) is authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht and Deutsche Bundesbank.
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