How to Trade CFDs
CFDs are a flexible alternative to conventional trading. With IG Markets you get transparent pricing on all the markets we cover, including shares, indices and forex.
The concept of CFD trading is simple. If you think a market is set to rise you buy at the top end of our quote (the offer price), or if you think the market will fall you sell at the bottom of our quote (the bid price).
Your position is a contract: you never actually own the instrument you are buying. The important fact is that when you buy you want the price to go up, and when you sell you want the price to drop.
Please note that this example is taken from our Australian site. The products and rates described relate to the Australian market and all calculations are denominated in AUD.
Example: Buying Westpac Banking Corp
On 6 March 2009 our quote for Westpac is $15.70/15.71. You believe Westpac will start its recovery and decide to buy 1,000 shares as a CFD at $15.71, the offer price. Your initial outlay is just 20% x 1,000 shares x $15.71 = $3142. The same outlay with a regular stockbroker would only give you exposure to the performance of 100 shares.
A week later, on 13 March 2009 Westpac has climbed to $17.19/17.20 in the market and you decide to take your profit. You sell 1,000 shares at $17.19, the bid price. The commission on this transaction is 0.1% or $17.19 (1,000 shares x $17.19 x 0.1%).
Your gross profit on the trade is calculated as follows:
Profit
| Closing level | $17.19 |
| Opening level | $15.71 |
| Difference | $1.48 |
Profit: $1.48 x 1000 = $1,480
To calculate the overall result on the transaction you would also have to take into account the commission you have paid and the interest and dividend adjustments. The Detailed Example includes these charges and adjustments.
*Please note that trading CFDs is a geared investment strategy, carrying a high risk to your capital. Only trade with money you can afford to lose. Please see our Risk Statement for more details.
The PureDeal platform
Trade CFDs at the market price using our browser-based PureDeal platform. PureDeal has a customisable interface which provides quick fire one-click dealing and full account management. Through PureDeal we also offer a full range of free trading tools and charting packages which provide up-to-the minute news and research to help your trading.
Learn about risk
CFDs are a leveraged product, so it is important to understand the risks involved before beginning to trade. Find out more about about types of risk and how to manage them, or if you're ready to start trading CFDs now, you can open an account online in minutes.
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