What are Margins in CFD trading CFD margins explained

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How to Trade CFDs

Find out more about Contract for Difference (CFD) trading with City Index.

How to place a CFD trade

With the ability to trade on falling markets, use leverage and access thousands of instruments, some trading 24 hours a day, investors are taking advantage of the versatility of CFDs as part of their portfolio.

CFD trading steps

  • Choose a market
    Decide which market you want to trade on. You can get trading inspiration through our fundamental and technical analysis research portal
  • Decide to buy or sell
    Click ‘buy’ if you think the price will increase in value or ‘sell’ if you think the market will fall in value
  • Select your trade size
    Choose how many CFDs you want to trade. 1 CFD is the equivalent of 1 physical share in equity trades
  • Add a stop loss
    A stop loss is an order to close your position out at a certain price if it moves too far against you
  • Monitor and close your trade
    Once you have placed your trade, you will see your profit/loss update in real time at the top of the screen. You can exit your trade by clicking the close trade button

CFD trading explained

Choosing a market

At City Index, we offer CFDs on thousands of individual markets including shares, indices, currencies, commodities, interest rates and bonds, allowing you instant exposure to major global markets including the UK, US, Europe, Asia, Australia and New Zealand.

With so much choice, it is important to find a trading opportunity that suits you. You can use the research tools provided on the trading platform to help you identify trading opportunities that match your trading style.

Use the search function on the platform or app to search and select your market. Learn more about our research tools here.

Decide to buy (go long) or sell (go short)

Once you have chosen a market, you need to know the current price. You can do this this by bringing up a trading ticket in the platform.

CFD markets have two prices. The first price quoted, is the sell price (the bid), and the second price is the buy price (the offer). The difference between the two is known as the spread. The price of your CFD is based on the price of the underlying instrument.

If you believe a market price will go up, you buy that market (known as going long). If you believe it will fall, you sell the market (going short).

Select your trade size

With CFD trading you select the number of CFDs you wish to trade.

With equity trades, 1 CFD is equivalent to 1 share. When trading indices, FX, commodities, bonds or interest rates, the value of 1 CFD varies depending on the instrument. You can see which number you are trading on by looking up the ‘tick value’ in the instrument’s market information sheets. CFDs are traded in the base currency of the market.

CFD trading is a leveraged product which means you only need to have a small percentage of the overall trade value, known as margin, in your account in order to open the trade. Generally speaking, the larger the value of your trade, the more margin required. It is important that you have sufficient funds in the account to place the trade. The margin calculator in the trading platform will automatically calculate your initial margin for you.

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Add stop and limit orders

Before you place your trade, it’s important to consider your risk management strategy.

A key risk management technique is to place an order such as a stop loss that will automatically close the trade if the market reaches a certain level.

A stop loss order is an instruction that allows the platform to close your open position once it reaches a specific level set by you. This will, as the name suggests, be at a price below the current market level and be triggered on losing trades to help minimise losses.

A limit order is an instruction to close out a trade at a price that is better than the current market level and is used to help lock in profit targets.

Standard stop losses and limit orders are free to place and can be placed in the dealing ticket when you first place your trade or once your trade is open.

Monitor your trade

Having placed your trade and any stops or limits, your profit and loss of your CFD trade will now fluctuate with each move in the market price.

You can track market prices, see your profit/loss update in real time and add new trades or close existing trades from your computer or by using our trading app on your smartphone or tablet.

Closing your trade

Once you are ready to close your trade, you need to do the opposite trade to the opening trade or select the ‘close position’ option within the positions window.

By closing the trade, your net open profit and loss will be realised and immediately reflected in your account cash balance.

This will be done for you if your stop loss or limit order has not been triggered.

CFD examples

Review the CFD trading examples to see how CFD trading works in practice.

Trade CFDs on over 5,000 markets

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Trading with us

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

△ Based on CFD spreads and financing competitor comparison on 28/08/2020.

* Spread Betting and CFD Trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

† 1 point spreads available on the UK 100, Germany 30, France 40 and Australia 200 during market hours on daily funded trades & daily future spread bets and CFDs (excluding futures).

‡ Voted “Best Trading Platform”, “Best Mobile Application” and “Best Spread Betting Provider” at the OPWA Awards 2020. Voted “Best CFD Provider” at the ADVFN Awards 2020. Voted “Best Professional Trading Platform” and “Best Spread Betting Provider” at the 2020 Shares Awards. Voted “Best Cryptocurrency Trading Platform” at the 2020 OPWA Awards.

City Index is a trading name of GAIN Capital UK Limited. Head and Registered Office: Park House, 16 Finsbury Circus, London, EC2M 7EB. GAIN Capital UK Ltd is a company registered in England and Wales, number: 1761813. Authorised and Regulated by the Financial Conduct Authority. FCA Register Number: 113942. VAT number: 524837435.

City Index and City Trading are trademarks of GAIN Capital UK Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© 2020 City Index

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Margin & Leverage

What are they?

Margin can be thought as the deposit required to open and maintain positions. This is not a fee or a transaction cost but a portion of your account equity set aside and allocated as a margin deposit. Margin is normally expressed as a percentage of position size (e.g. 2% or 5%).

Leverage involves borrowing a certain amount of money needed to gain exposure to a particular market, with a relatively small deposit. Leverage allows you to take a position of much higher value than the monies deposited in your account. It is commonly expressed as a ratio.

How do they work?

How to check Leverage?

How to choose Leverage?

Available Leverage Min. Account Equity Max. Account Equity
500:1 $500 $5,000
400:1 $500 $10,000
300:1 $500 $50,000
200:1 $500 $100,000
100:1 $100 $100,000+
50:1 $100 $100,000+
25:1 $100 $100,000+
1:1 $100 $100,000+

How to change Leverage?

If you wish to change the leverage ratio on your Eightcap trading account, you can do it easily either by submitting a request through the Client Portal area or emailing us at [email protected].

Again, higher leverage ratios may not be suitable for every trading style. If you are looking to trade with higher leverage, please remember: leverage is a double-edged sword. Yes, it can assist in opening a larger trade size, but thus amplifies gains and losses.

Margin trading refers to using borrowed funds from a broker to purchase a financial asset or assets in a larger volume. Traders use margin to buy more stock than they would normally be able to (or afford to do). Margin is then used to create leverage to enter larger trades or open larger positions, in a bid to magnify gains.

Platform time is the real time trading platforms are set in, including the software’s charts and data.
EightCap clients have access to MetaTrader 4 (MT4) and MetaTrader 5 (MT5) and all clients trade under the same platform time. The platforms are set to Greenwich Mean Time (GMT) + 2 hours.

Charts are very important when it comes to efficient trading and interpreting market data correctly. Traders have the opportunity to use various charts and indicators that best suit their needs. Charts with a clear design and easy to read elements help the trader to take advantage of the rising trading opportunities on the Forex and CFD market. The most popular, found in MetaTrader 4 and in MetaTrader 5 is the candlestick chart. Candlesticks form various patterns that can help the trader confirm different market trends and make better trading decisions.

The Bottom Line

Using leverage allows for significant scope to maximise the returns on profitable Forex trades. After all, applying leverage means you can be controlling currencies worth 100 or more times the value of your actual investment.

However, if the underlying currency in one of your trades moves against you, the leverage in the Forex trade will magnify your losses and these losses may add up very quickly and without sufficient margin remaining in your account, you run the risk of those losses turning into realised losses.

If you are a new or inexperienced trader, we highly suggest that you consider limiting your leverage to a low level. Trading with higher leverage is one of the most common errors committed by new and inexperienced Forex traders.

Please also keep in mind that it is client’s own responsibility, not us, to continually monitor positions and make any margin payments as they become due.

Our trading platforms have a built-in automatic stop-out system to monitor and control risk exposure in real-time. If your account equity falls below the margin requirement, a ‘Margin Call’ warning will ensue, advising that you do not have sufficient equity to support current open positions – please note that this does not guarantee the balance will not go into negative; trade execution depends on market liquidity and pricing.

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Risk Warning: Margin trading involves a high level of risk, and may not be suitable for all investors. You should carefully consider your objectives, financial situation, needs and level of experience before entering into any margined transactions with Eightcap, and seek independent advice if necessary. Forex and CFDs are highly leveraged products which mean both gains and losses are magnified. You should only trade in these products if you fully understand the risks involved and can afford losses without adversely affecting your lifestyle (including the risk of losing substantially more than your initial investment). A Product Disclosure Statement (PDS) and a Financial Services Guide (FSG) for our products are available to download from our Legal Documentation page. You must assess and consider them carefully before making any decision about using our products or services.

‘Eightcap’ is a brand of Eightcap Pty Ltd (ABN 73 139 495 944) regulated by the Australian Securities and Investment Commission (AFSL 391441), Eightcap Global Ltd (Vanuatu) regulated by the Vanuatu Financial Services Commission company registration no. 40377.

The information on this website is of a general nature only and is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Eightcap does not provide or issue financial advice, recommendations, or opinion in relation to acquiring, holding or disposing of a margined transaction. We provide general advice only and accordingly you should consider how appropriate the advice (if any) is to your objectives, financial situation and needs before acting on the advice.

What is CFD

CFD Meaning

Thus, What are CFDs? CFDs are derivative financial instruments by their nature that provide traders with an opportunity to make profit on price movements of various assets, allowing opening long positions when the asset prices go up and short positions, when the prices go down. The CFD value linked to the underlying asset moves in the same direction as the price of the underlying asset and depends on the same factors. At the same time being much more flexible and accessible, contracts for difference present a number of advantages, such as low cost, trading with leverage and market diversification, compared to trading the underlying asset directly.

CFD Example

If you are still asking “What is a CFD?” it is worth to bring a CFD Trading Example that will help you to imagine it in practice. Let’s say the initial price of Apple stocks is $100. You conclude (buy) a CFD contract for 1000 Apple stocks. If the price then goes up to $105, the sum of the difference, paid to the buyer by the seller will equal to $5,000. And vice versa, if the price falls to $95, the seller will get the price difference from the buyer equal to $5,000. The contract does not imply physical ownership or purchase/sale of the underlying stocks that enables investors to avoid the registration of the ownership rights for the assets and the associated transaction costs.

Start earning now in giant market

Principles of CFD Trading

CFD imitates the profit and loss for real purchase or sale of an asset. The contract provides an opportunity for trading in the underlying market and make a profit without actually owning the asset.

Let us assume that you expect the rally in metals market to continue and you want to buy 1000 stocks of Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer. You can buy these stocks through a broker paying a considerable portion (according to the regulatory norms of the Federal Reserve, the initial margin is currently 50% in the U.S.) of the total value of these stocks and take a leverage from the broker for the other part and, moreover, to pay commission to the broker.

Instead, you can buy CFD contract for 1000 FCX stocks. To buy this contract you would have to make much lower margin deposit (2.5% of the total value of stocks provided by IFC Markets).

What is CFD Trading

The question “what is CFD trading?” is the most frequent one among beginner traders, who are just starting out in online trading. CFD is a versatile investment instrument and it is traded by the same method as currencies are done.

Alongside with these instruments, IFC Markets has developed new types of CFDs – Continuous CFDs, i.e. contracts that do not have expiration dates. These Continuous CFDs imply that investors themselves decide the dates for closing the contract and taking the profit/ loss. Besides, several below mentioned opportunities make the contracts for difference ideal instruments for online trading.

Margin Trading

Margin trading allows to take a higher position volume in the market by a small sum of the invested capital. When the market moves according to your expected direction the profit increases by the provided leverage, since you had deposited only a part of the total contract value but the profit will be made from the change of the total value. Conversely, in margin trading losses may also increase in case the market goes against your expected direction. That is why it is important to be careful when trading with a leverage: risk management becomes highly important.

Day Trading

Day trading is defined as the process of buying and selling various assets within the same trading day. This means that a trader or an investor is free to make as many trading transactions as he would like within a single day. As leveraged trading enables opening bigger positions with limited deposit amount, trading CFD is possible even in cases of slight fluctuations of the asset value during one day.

Trading Stocks, Commodities, Indices and Currencies

A CFD (Contract for Difference) is a universal trading instrument, which has gained much popularity in the last years. With the help of CFDs, it has become possible to trade on the price movements of various financial instruments, without the need to possess them physically. Nowadays, CFDs allow to trade not only stocks but also major indices, currencies and commodities.

Trading on both Rising and Falling Markets

CFD is a flexible investment instrument. When you believe the market will rise you can make a profit by buying CFD which is known as going long. You can also speculate on falling prices by selling CFDs, known as going short. Holders of open buy positions on Stock CFD get a dividend adjustment equal to the announced dividend payment amount, if they have a long position open on the instrument at the beginning of trading session on the adjustment payment day (coincides with the ex-dividend date). In contrast, the dividend adjustment is deducted from customer’s account in case of a short position.

Hedging the Investment Portfolio

If you believe that stocks you own are going to fall in price but still want to hold them, you can use the hedging strategy to protect your portfolio from risks by opening a short CFD position on your stocks portfolio. Your profits from going short in CFDs will reimburse the loss from the falling prices of the assets in your portfolio. You will carry lower transaction costs compared to hedging by selling the physical stocks in order to buy them back cheaper later.

CFD trading instruments at IFCM

Stock CFD Trading

This group includes CFDs on highly liquid stocks of companies that are traded on the world stock markets.

Commodity Futures CFD Trading

Commodity Futures CFD Instruments allow investing in price dynamics of commodities through liquid futures.

Continuous Index CFDs

The instruments of this group allow to trade indices of leading stock exchanges and currencies. The price of instruments is expressed in local …

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