Benefits and risks of CFD trading

Why trade CFDs?

With CFDs, you could:

1. Make your capital go further with leverage
2. Go short or long
3. Trade a huge range of markets
4. Mirror trading the underlying market
5. Access DMA

If you’re new to CFDs, start with our introduction to CFD trading and how it works.

Make your capital go further with leverage

When trading CFDs, you could stretch your capital further, as you only have to deposit a fraction of your trade’s full value to open a position. The deposit you’ll have to put down is called a margin. While this lowers the cost of opening a trade, it can also be very risky, as it’ll amplify your losses. This is because CFD profits and losses are calculated on the full size of your trade. Always take sufficient steps to manage your risk.

How much you’ll need to deposit depends on the size of your position and the margin factor for your chosen market. For example, many of our share CFDs have a margin of 5%, most major indices have a margin of 0.5%, cryptos typically have a margin of 10%, and most major forex pairs have a margin of 2.5%. Learn more about our CFD margin requirements.

For an easy way to find out the margin requirement for your trade – as well as the potential profit or loss – try out our CFD calculator. An example would be if you decided to trade CFD shares on BHP, which has a margin factor of 5%. In this case, a position worth CHF1000 would only require a deposit of CHF50.

However, it’s important to remember that your total profit or loss is based on the full size of your position, not your margin. So, in our previous example of BHP share CFDs, your potential for loss or profit would be based on the full CHF1000, even though you only paid CHF50 to open the position.

Go short or long

When you trade CFDs on our platform, you’ll see two prices listed: the ‘buy’ price and the ‘sell’ price. You’ll trade at the buy price if you think that the market is going to go up in price (known as going long), and the sell price if you think it is going to go down in price (known as going short).

If your prediction is correct, you will make a profit based on your overall position (not the initial margin amount you paid to open the trade), which can exceed the initial cost of your margin. However, if your prediction is incorrect and you make a loss, that loss is also calculated based on your total position size. This means that your losses can far outweigh the margin cost, so always ensure you are trading within your means and take appropriate risk management steps.

Trade a huge range of markets

With us, you can trade CFDs on more than 17,000 markets. This includes over 12,000 shares and ETFs, 80 of the world’s top indices, 35 commodities, more than 10 cryptos, all major, minor and exotic forex pairs and more.

You can even trade some markets outside of trading hours, to make the most of economic and political events and announcements. We have some of the best pre-market and after-hours offerings available, so you can trade long before and after the main market session on our All Session stocks.

Just keep in mind that the market’s opening price may differ from its out-of-hours price and trades opened and not closed by 11pm (Swiss time) will incur overnight funding charges

Mirror trading the underlying market

CFDs are designed to mimic trading their underlying market fairly closely. This means you simply buy and sell CFDs as you would the underlying asset. For example, buying an Apple share CFD is the equivalent of buying a single share in Apple – if you want to buy the equivalent of 2000 Apple shares, you’d buy 2000 Apple CFDs.

Buying or selling a forex CFD, meanwhile, is equivalent to buying a certain amount of base currency by selling the equivalent amount of quote currency. These are called lots and there are different sizes of lots for forex: standard, mini, micro and nano. The greater the lot size, the more money you’ll need to put down to open a position. So, buying a single CFD on the GBP/CHF exchange would give you the same exposure as buying £100,000 in Swiss francs for a standard lot, but £1000 with a mini lot. Find out more about lot sizes for forex.

With commodities and indices, the points a market moves are directly correlated to the real-time price of that index or commodity.

Access DMA

If you’re an advanced trader, you can get direct market access (DMA). Our DMA offering enables you to see and interact with the order books of stock exchanges. Instead of trading at the buy and sell prices offered by us, you can see all the available bid and offer prices at any time and trade at market prices you choose.

Using DMA means there’s no spread to pay because these trades are charged on commission. But, while DMA can be a powerful tool, there’s no guarantee that you’ll find prices that are better than the prices we offer.

DMA is only recommended if you’re an advanced trader with plenty of experience, due to the risks and complexities involved. Read about the risks of DMA before you consider this option.