How to trade CFDs on forex markets

What are FX CFDs?

FX CFDs are contracts used to trade currency pairs via leverage. The FX market is known to be highly volatile, so traders often choose to trade this asset class using CFDs – as it allows them to predict both rising and falling prices.

All CFDs are traded using leverage, which means you only need to put up a smaller amount of deposit (called margin) to open a larger position. However, as your total profit or loss is based on the full size of your position, either could significantly outweigh your margin amount. You should always take appropriate risk management steps when trading CFDs.

FX CFDs: the essentials

Before getting started, there are some key things traders should know about the FX market and CFDs as a way to trade financial markets. Here are the five essentials to know:

What’s the difference between FX and CFDs?

FX is one of the many markets you can trade with us. When trading FX, you’re predicting on the value of one currency against another – for example, EUR vs USD. CFDs is the method you can use to get exposure to FX with us. When trading FX with a CFD account, you don’t take ownership of physical currencies. Instead, you’ll use CFDs, which is a derivative product, to predict price movements.

FX is traded in pairs and mimics the underlying

FX is always traded in pairs – for example, the euro and the US dollar (EUR/USD). You’re always buying one currency and selling the other in the pair, based on which currency you think is going to appreciate in value against the other. The currency being bought is known as the base currency (appears on the left), while the other is called the quote currency (appears on the right).

The price of the pair shows how many of the quote currency it’ll cost to buy one of the base. So, if EUR/USD is trading at 1.35000, it means it costs US$1.35 to buy €1. Note that CFD FX trading is designed to mimic trading the underlying market relatively closely. Our FX CFD prices are driven by the movements of the underlying market.

Lastly, currencies are traded in lots – batches of currency used to standardise FX trades. These lots tend to be large, to account for the fact that FX price movements are usually small. For example, a standard lot is 100,000 units of the base currency while a micro lot is 1,000 units.

FX CFDs trade in the quote currency

With us, you’d usually trade FX CFDs on the spot (on the current cash price of that currency pair, as opposed to the future price) and you’d always trade in the quote currency. For example, when trading EUR/USD, you’ll trade in US dollars.

In FX, you can trade major pairs like the EUR/USD or GBP/USD or minor pairs like the GBP/CAD and even exotic pairs like the EUR/MXN.

Spot vs options for FX CFDs

Most of our CFD FX trades are on spot markets, meaning you trade them based on their current cash price, in real time. However, you can also trade FX options.

Options give you the right, but not the obligation, to buy or sell currency pairs before a predetermined expiry date. Unlike spot market FX, which work on current prices, you get daily, weekly, monthly and quarterly options.

Although FX options are based on the spot price of currency pairs, there are differences between the two. Spot forex markets have no expiry date, but do incur overnight funding charges if you leave a position open longer than a day. Forex options do have an expiry date but no overnight funding charges. There are 80 currency pairs to trade with spot forex (including major, minor and exotic ones), while forex options have nine.

With us, both FX spot trading and FX options are traded using CFDs. There are many pros and cons to trading with CFDs – not least of all that CFDs are leveraged. As mentioned, this means that you only need to put up a deposit (called margin) to open a larger position – which can stretch your capital further. However, your total profit and loss can far outweigh your initial deposit as both are calculated on the total position and not your margin amount.

Spot FX CFDs are traded in contracts

With spot FX CFDs, you’ll be trading in contracts. To calculate the profit or loss from a CFD FX trade, you’ll multiply the deal size of your position (the total number of contracts) by the value of each contract. Then, you’ll multiply that figure by the difference in points between the price when you opened the trade and the price when you closed it

How to trade FX CFDs

1. Learn all about CFD trading and FX trading
2. Open and fund your live CFD account
3. Choose your currency pair
4. Decide whether you want to trade FX on the spot or via options
5. Open your first FX CFD trade
6. Monitor your position

Learn all about CFD trading and FX trading

There’s much to learn about both CFDs – one of the most popular derivative products – and FX, the world’s most-traded financial market.

Your first step towards trading CFDs is to learn how they work. Read our quick introduction: what is CFD trading and how does it work? To learn more about FX, read what is forex and how does it work?

Next, visit IG Academy for free resources that explain and educate on FX for different level of experience from beginner to advanced.

Lastly, develop your confidence and hone your skill with our free demo account, which allows you to practise with virtual funds.

Open and fund your live CFD account

1. Fill in a simple form

We’ll ask about your trading knowledge to ensure you get the best experience

2. Get swift verification

We aim to verify your identity as quickly as possible

3. Fund and start trading

You can also withdraw your money easily, whenever you like

To begin trading CFDs:

Not ready to start trading yet? No problem – start off in a risk-free, virtual environment with our free demo account.

Choose your currency pair to trade

There are over 80 currency pairs to choose from with us, including major, minor and exotic pairs .

Before choosing an FX pair to trade, you may carry out fundamental analysis and technical analysis on the two currencies in the pair. This means assessing how the ‘base’ (the currency on the left) and the ‘quote’ (the currency on the right) moves in relation to each other.

Decide whether you want to trade spot FX CFDs or CFD FX options

As we’ve mentioned previously, there are different ways to trade FX with us:

• Spot FX trading enables you to trade FX pairs at their current market price with no fixed expiries
• FX options give you the right, but not the obligation, to buy or sell a currency pair at a set price, if it moves beyond that price within a set time frame

Open your first FX CFD trade

Once you’ve opened your live account with us, you’re ready to start trading FX CFDs. Simply head onto our CFD trading platform and choose whether to buy or sell your chosen currency pair.

You’d buy the pair if you expected the base currency to rise in value against the quote currency. Or, you’d sell if you expected it to do the opposite.

Lastly, set your stops and limits before opening a position. The FX market is particularly volatile, which makes stops and limits vital risk management tools to prevent potential losses you aren’t comfortable with. Learn more about stops and limits here

Monitor your position

Once you’ve opened your position, you can monitor your FX CFD trade in the ‘open positions’ section of the platform. Once your position is open, stay up to date with newsfeeds in our platform, trading signals and trading alerts. You can also set price alerts to receive email, SMS or push notifications when a specified buy or sell percentage or point is reached.

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Develop your knowledge of CFD trading with IG

Find out more about CFD trading and test yourself with IG Academy’s range of online courses.