How to trade stock CFDs

Want to know how to trade stocks using CFDs without owning the underlying stock? This section breaks down how to profit from falling and rising prices.

What moves the stock price?

Before you place your first trade, you need to know the main factors that will impact the stock prices of the companies that we offer which include household names such as Tesla, Amazon, Apple, and others.

Please note that FOREX.com offers stock CFDs, not stocks themselves.

Company earnings reports

Listed companies must issue regular earnings reports that declare their financial performance. Most companies release quarterly reports with an in-depth report once a year.

Earning reports give a good indication on the state of a company and whether they are on the right track.

Supply and demand

If a stock is considered a good buy by many investors and analysts, then it will drive up the stock price as there is big demand and only limited supply.

Equally, if a stock is considered a poor investment, then the price will fall as there is little demand and excess supply.

Both directions will naturally impact the performance of the corresponding stock CFDs.

However, note that market sentiment is not always correct. Sometimes widely held assumptions about a stock can be wrong. The dot.com bubble in the early 2000s where various internet companies were grossly overvalued is testament to that.

The company board

If a company hires a new, trailblazing CEO then the investors are likely to react positively.

Conversely, if a senior person leaves under a cloud then this will have a negative reaction. For example, in November 2020 McDonalds fired its CEO Steve Easterbrook for having a relationship with a subordinate. As a result, McDonalds shares dropped 3%, losing $4 billion in value.

The news

Stock prices can be affected by a wide range of economic, industry and political events:

  • New product launches
  • Industry news
  • Competitor outlook
  • Mergers
  • Environmental disasters
  • Political events
  • GDP figures

Interest rates

High interest rates makes other safer investments such as bonds more appealing. This is because the higher interest rates give bonds a higher rate of return and are guaranteed by the government.

If interest rates are low, then investors will seek better rates of return by investing in stocks.

What does market capitalization mean?

Market capitalization is a measure of a company's worth. It's a term you will come across often when trading stocks.

It is calculated by the number of outstanding shares x the stock price

For example, if a company issue 5 million shares at $100 each, then its market capitalization would be $500 million.

(Shares outstanding refers to the total number of shares issued)

Companies are also commonly categorized by their market capitalization size:

  • Large-cap - $10 billion + (Apple, Procter & Gamble, Barclays)
  • Mid-cap - $2-10 billion (Peloton Interactive, Crocs, Games Workshop)
  • Small-cap - $250 million -$2 billion (Saga, Tullow Oil, Stobart Group)

How do I trade stocks

At FOREX.com, you can trade stock CFDs. This means you are speculating on the price of a stock without ever actually owning it.

Trading stock CFDs means you can go long or short, and take advantage of leverage. Leverage means you only have to put up a fraction of the trade size in order to trade it.

Please be aware that leverage can magnify your wins, but it can also magnify your losses. It is highly recommended that you understand this concept before you start trading. 

In this educational example, we will use Barclays stock CFDs.

Step 1: Decide on which company stock to trade

You hear news that Barclays is set to announce strong profits. You also read multiple articles that say Barclays has strong leadership and is winning customers from rival banks.

You decide to buy Barclays stock CFDs.

Step 2: Log into platform and search for your chosen company

To place your trade:

Trading screen showing a table and chart tracking performance of Barclays UK CFD

Already you can see the ‘SELL’ and ‘BUY’ buttons in the top right of the screen. Selecting either of these will open the deal ticket and enable you to choose how much you want to trade.

Step 3: Review in-depth details from Market 360

But first, we will select ‘Market 360’. This will give you all the information about Barclays – from charting tools, news and the commission fee in one convenient place.

How to place a share trade example of an equity/share of Barclays UK CFD 1hr

Step 4: Place your buy order

To buy Barclays, select the green ‘Buy’ button. This will open the deal ticket.

In the quantity section, you enter how many CFDs you want to buy.

You enter 100.

The point value section shows a value of $1 (1 CFD = 1 penny). This means you will earn $1 for every point the share price increases, and lose $1 for every point the share price falls.

Select ‘Place Trade’

Congratulations. You bought 100 Barclays CFDs at 137.50

You were charged a commission of $10

How to place a trade: Buying Barclays UK CFD screen

Step 5: Decide on when to close your trade

Your intuition proves more than correct. Ten days later Barclays announce record profits and the share price jumps 20 points to 157.5.

You decide it’s time to close your trade and take your profit.

This will launch the deal ticket.

How to place a share trade example

Step 6: Close your trade

As you can see, the deal ticket shows that if you close the trade now, you will make a profit of $20 ($10 profit if you take into account the $10 commission fee).

To close your trade, simply select ‘Close Position’.

How to place a trade: Selling Barclays UK CFD screen

Alternative scenario

However, no trader gets it right every time. Barclays could’ve released worse results than expected and dropped 20 points to 117.50.

In this instance, you would have made a loss of $20 ($30 loss if you take into account the $10 commission fee).

There’s more to learn about stocks in our Trading Academy