If you’re ready to open a position on a share CFD, here are three steps to follow:
1. Choose which stocks CFD to focus on
At IG, you can speculate on the price movement of SG stocks and more via Contract for Differences (CFDs).
2. Decide whether you want to go "long" or "short"
You can use our market screener tool to choose from over 13,000 CFD markets on international stocks and ETFs.
Alternatively if you’d like to learn more about trading shares, read our in-depth guide below.
Learn how the stock market works
The stock market works much in the same way as an auction – buyers and sellers negotiate a price that they are both comfortable exchanging for an asset, in this case shares of companies.
Companies that wish to raise capital will list their shares through the process known as an initial public offering (IPO). Once their stock is public, individual investors and institutions can start to trade the shares.
Individuals who believe that a company will see strong growth will buy the shares, hopefully for a low price so that they can make a profit when they sell it at a later date. While individuals who believe a company will face trouble would sell the shares, aiming to make as much as possible for their shares so that they turn a profit or cut a loss.
You have to be registered to trade directly on an exchange, so most people will go through a stockbroker, who will execute your order to buy (or sell) your shares in the market based on your instructions. Other traders who want to speculate on the share price without taking actual ownership of the shares, may choose to trade other financial products, such as CFDs, with leverage trading providers like IG. Today, the majority of retail stock trading takes place via an online trading platform.
What moves the price of shares?
Initially, a company will set a price at which it will list on a stock exchange – known as its IPO price. After that, fluctuations in the share price are caused by changes in the supply of and demand for the stock.
There is always a limited supply of a company’s stock. A company can make the decision to issue more shares, or buy back shares from investors to reduce supply, but the number of shares in circulation is always known.
If there are more buyers than sellers on the market, then demand grows and the share price will rise. However if there are more sellers on the market, indicating a fall in demand, then the share price will decline.
There are a number of reasons that the demand for a share can fluctuate over time, including:
- Earnings reports. Companies usually release interim reports on their financial performance once every quarter and a full report once a year. These influence the company’s share price as traders and investors use figures including revenue, profit and earnings per share (EPS) as part of their fundamental analysis
- Macroeconomic data. The state of the economy a company operates in will affect its growth. Data releases such as gross domestic product (GDP) and retail sales can have a significant influence on company share prices – strong data can cause them to rise, while weak data can cause them to fall
- Interest rates. If rates are high, individuals won’t need to take big risks to get healthy returns and can save instead, which may cause the stock market to see less investment. So if it looks like a central bank is likely to raise interest rates, demand for shares may fall
- Market sentiment. Share price movements aren’t always based on fundamental analysis. The view that the public, as well as market participants, have on a particular stock can also cause demand to fluctuate. This is how speculative bubbles are formed
Know the difference between buying and trading stocks
Before you can take a position on a share, it is important to understand the differences between how to buy a share, and how to trade on its price movements. One difference between these two methods are the timeframes that the positions are generally held by traders, and the means of making a profit.
Investors buy shares outright in the hope that they will increase in price and can be sold at a later date for a profit. They uphold the traditional mantra of buying low and selling high – known as going long. Investors will generally take positions over a longer period of time, attempting to profit from share price changes as well as dividend payments.
Other investors, may also choose to invest in multiple shares by:
- Trading ETFs. These funds can be used to invest in multiple shares at once, such as entire indices or sectors.
Traders use derivative products (such as CFDs) that derive their value from the price of the underlying market. These do not require traders to own the shares so, while traders will not have shareholder rights or receive dividends, they can take a position to profit from both falling and rising prices. Traders will tend to hold positions over the short to medium term and focus on smaller market movements.
You can trade shares with IG by:
- CFD trading. This method allows you to trade out-of-hours markets, and the ability to go both long and short.
Find out more about the differences between trading and investing on our CFDs vs share dealing page.
Build a share trading plan
A good trading plan can be hugely beneficial to your stock trading or investing, as it will outline exactly what your aims are, how much capital you have at your disposal and what your appetite for risk is.
The aim of a trading plan is to take the emotion out of your decision-making, as well as providing some structure for when you open and close your positions.
Understand the risks and charges
When you invest in stocks, your risk is always limited to your initial outlay. If you were to invest £1000, all you could ever lose is £1000 – even if the share price fell all the way to zero. You’ll also be charged a commission fee for entering and exiting each position.
The risks associated with trading are extremely different. CFDs use leverage, a feature which enables traders to open a position for just a fraction of the initial outlay required of investors. While leverage magnifies your profits, it could also magnify your losses and your losses can exceed your initial outlay.
There are tools that traders can use to manage this risk, such as stop-losses that enable them to define their exit point for trades that move against them. Normal and trailing stops can be impacted by slippage, which is when market volatility causes a disparity between the price you have requested and the price your provider can execute the trade at. However, you can protect yourself against slippage by attaching a guaranteed stop-loss. Unlike other providers, IG doesn’t charge you anything upfront to use a guaranteed stop, but there would be a small premium to pay if it is triggered.
For example, let’s say you want to buy 1000 shares of a company at a share price of 100p. To open a conventional trade with a stockbroker, you would be required to pay £1000 (ignoring any commission or other charges). If you had opened your trade with a leveraged provider instead, you will be required to put down a margin requirement of 20% on the same shares – this would give you a £1000 exposure, with an initial deposit £200 (ignoring any commission or other charge) needed to open the position.
When you trade CFDs, you will pay a commission on each side of the trade. Other fees and charges may apply.
Open a live account
Creating a live trading account with IG is a straightforward application process. You could be ready to open your first position in minutes with these simple steps:
Fill in our simple online form
We’ll ask a few questions about your trading experience.
Instant online verification
We can usually verify your identity immediately.
Choose your CFD account type
You can trade CFD's via our proprietary trading platform, or you can open an MT4 account.
Fund your account and trade
Withdraw money easily, via our online platform.
If you don’t feel confident enough to start trading on live markets, you might want to consider opening a demo CFD trading account. An IG demo account comes preloaded with $200,000 virtual funds, which can be used to practise trading thousands of shares. Once you’re comfortable using IG's platform, you can upgrade to a live account to trade on the live markets.
Find a stock trading opportunity
IG offers a wide range of trading tools that will help you to identify trading opportunities, including our:
- Stock market screener. Filter shares by country, sector or index – and sort by EPS, market cap and more
- Technical analysis tools. Use our powerful HTML5 charts that include indicators such as Bollinger bands, RSI and moving averages
- News and trade ideas. Find information on stocks to watch and market opportunities from our team of expert analysts and in-house financial writers
- Trading alerts. Set notifications for when a share price reaches a certain level or moves by a certain amount
Open, monitor and close your first position
Once you have chosen a stock to focus on, you can open your first position.
If you want to start trading share CFDs instead, the first thing to decide is whether you’ll ‘buy’ the market to open a long position, or ‘sell’ to open a short one. When you open a trade, you can also attach orders to your position. This includes stop orders – which automatically close your trade if the market moves against you by a predetermined amount – and limit orders, which would close your position when the market moves in your favour.
Whichever method you choose, you’ll be able to monitor your open positions on your workspace. Any running profit or loss will move in line with the underlying share prices. Once you are ready to close your trade, you can do so by clicking on the open position and selecting the 'close' button. Your final profit and loss would be realised upon the closing of the trade.
When you invest, you can fully close your position by opting to sell your shareholding. When you trade, you’ll just need to select the ‘close’ button. Your final profit or loss would be realised upon the closing of the trade – the calculation would vary depending on whether you are trading CFDs.
You can also close your trading positions manually by taking the opposite position from your initial trade (unless you have selected to force open the new position). So if you opened your position by buying a share, you would close it by selling the same share – and vice versa.
Your profit and loss is determined by your ability to correctly predict whether a company’s stock will rise or fall in value. If you are trading share CFDs and you believe the share price will rise, then you can open a long position (BUY) and take profit in a rising market. If you believe the share price will fall, then you can open a short position (SELL) and take profit in a falling market. If you predict incorrectly, your positions will make a loss.
It is important to remember that you are trading with leverage when trading CFDs, which means both your profit and losses can be magnified, and your losses can exceed your deposits.
You can trade shares CFDs online via the IG trading platform, which offers you a fast and smart way to trade via your web browser. You will have full dealing functionality and be able to open, close and edit positions with just a few clicks.
Learn more about the IG online trading platform.
Before making any trades, Beginners should ensure they learn as much as possible about the market and financial product they are trading in, before opening any positions. One way to do this is to take a look at IG Academy’s range of online courses.
Another way for beginners to gain confidence trading stocks is by opening an IG demo account. They can build their strategy in a risk-free environment by practising trading with $200,000 in virtual funds.
It is important to remember that all forms of investment carry risk. Trading CFDs may not be suitable for everyone and can result in losses that exceed your deposits. Please ensure you fully understand the risk and costs involved by reading the Risk Disclosure Statement and Risk Fact Sheet available.
Develop your knowledge of financial markets
Find out more about a range of markets and test yourself with IG Academy’s online courses.