The fundamentals
What Is a CFD?
A Contract for Difference, commonly known as a CFD, is a financial product based on the price movement of an underlying market.
Instead of purchasing the underlying asset, a CFD position reflects the difference between the market price when the position is opened and the market price when it is closed.
CFDs can provide exposure to a range of markets, including currencies, stocks, metals, commodities, indices and other available financial instruments.
Position direction
How Does CFD Trading Work?
CFD trading is based on changes in the price of an underlying market.
When opening a CFD position, a trader takes a view on whether the market price may rise or fall.
Price expectation
Going Long
A long position is opened when a trader expects the price of the selected market to rise.
If the market rises, the position may increase in value. If the market falls, a loss may occur.
Price expectation
Going Short
A short position is opened when a trader expects the price of the selected market to fall.
If the market falls, the position may increase in value. If the market rises instead, a loss may occur.
Both long and short positions involve risk.
Core terminology
Understanding CFD Trading
Underlying Market
The underlying market is the financial asset or market whose price movement the CFD follows.
Opening Price
The market price at which a CFD position is opened.
Closing Price
The market price at which the CFD position is closed.
Position Size
The amount of market exposure associated with a CFD position.
Profit or Loss
The result of a CFD position is determined by the difference between the opening and closing prices, together with the position size and any applicable trading costs or adjustments.
Market access
Markets Available Through CFDs
Forex
Gain exposure to price movements between global currencies through currency pairs.
Stocks
Follow price movements across shares of selected publicly listed companies.
Metals
Access markets including precious metals such as Gold and Silver.
Commodities
Explore markets influenced by global production, consumption, supply and demand.
Indices
Follow the combined performance of selected groups of companies across major global stock markets.
Crypto CFDs
Gain exposure to available cryptocurrency price movements without directly owning the underlying digital assets.
Exposure & capital
Understanding Leverage & Margin
Understanding Leverage
CFDs are leveraged products.
Leverage allows a trader to gain market exposure greater than the margin required to open a position.
For example, only a portion of the total position value may be required as margin to open a leveraged position.
However, gains and losses are determined according to the full market exposure of the position. This means leverage can magnify both potential gains and potential losses.
Understanding Margin
Margin is the amount of capital required to open and maintain a leveraged CFD position.
The margin requirement can vary depending on the selected instrument, position size, account conditions and applicable trading requirements.
If market movements reduce the available funds supporting open positions, additional action may be required to maintain those positions.
Trading conditions
Understanding CFD Trading Costs
Different costs may apply when trading CFDs depending on the instrument and trading conditions.
Spread
The difference between the bid and ask prices of a market.
Commission
A trading fee that may apply to certain instruments or account types.
Swap Rate
A financing adjustment that may apply when certain CFD positions remain open beyond the applicable trading day.
Common characteristics
Why Do Traders Use CFDs?
Multiple Markets
CFDs can provide access to different financial markets through one trading environment.
Rising & Falling Markets
CFDs allow traders to take positions based on whether they expect a market price to rise or fall.
Leveraged Market Exposure
CFDs can provide greater market exposure relative to the margin required to open a position.
No Direct Ownership
CFD trading provides exposure to market price movements without requiring direct ownership of the underlying asset.
Market context
What Can Move CFD Markets?
The factors influencing a CFD depend on its underlying market.
Currency markets can respond to interest rates and central-bank decisions, while stocks can react to company earnings and business developments.
Commodity and metals markets can respond to supply and demand, economic activity and geopolitical events, while indices can be influenced by economic data and broader stock-market sentiment.
Understanding the underlying market is therefore an important part of understanding a CFD position.
View the Economic CalendarBefore you trade
Important Risk Information
CFDs are leveraged products and involve significant risk. Market prices can move rapidly, and leverage can magnify both gains and losses.
Losses can occur when the market moves against a position. Trading conditions, margin requirements and market volatility can vary between instruments.
Clients should understand how CFDs work, the characteristics of the underlying market and the associated risks before trading.