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How to Trade CFDs

Read more about what CFD trading is, how to trade CFDs and discover a range of tips and strategies.

A CFD is simply an agreement between a buyer and a seller to exchange the difference in the opening price and closing price of a particular asset.

Example

Example

For example, if you buy 1 CFD in (go long) oil at an opening price of $50 a barrel and close the trade out at $51 a barrel, this equates to 100 pips as 1 pip in oil is a 1 cent move (0.01). Your profit on the move would be $100, likewise if the price of oil moved down to $49 then this would equal a $100 loss.

CFDs are a leveraged product, which means you only need to deposit a fraction of the total value of trade. This margin requirement is essential to understand and it’s worth remembering that because of this your losses can exceed the deposited amount.

Therefore, if you were trading oil you might buy 10 CFDs at $50 a barrel, meaning you would control a trade worth $50,000. On a typical margin requirement of 10:1, this would mean you would need to have $5000 in your account to open this trade.

If oil rises to $51, to calculate your profit, you simply multiply your 10 CFDs by the total pip movement (1/0.01 = 100 pips * 10 CFDs) = $1,000. Likewise, in this example if oil slid to $49 you would face a loss of $1,000. This highlights the effect of leverage which magnifies gains and magnifies losses.

You must remember that some CFDs incur a small overnight financing charge and there is a commission charge when opening and closing CFD Equities.

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when spread betting or trading CFDs with ETX. You should consider whether you understand how spread bets orCFDs work and whether you can afford to take the high risk of losing your money.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and 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.