CFD trading

CFD margin works by only requiring you to hold a fraction of a trade’s total value in your account in order to open and maintain your position. However, your final profit and loss will still be based on the full size of your trade.

Trading €1000 of Barclays stock with CFDs, for example, might only require you to have €200 in your account as margin. But if that stock then increases to a value of €1100, you’ll make the full €100 as profit – the same as if you’d paid the full €1000. If the stock falls to €900, you still lose €100.

Essentially, in this example you’d have made €100 profit from an initial outlay of just €200, a gain of 50%. Without CFDs, you’d still have made €100, but you’d have paid €1000. Your gain would only be 10%, meaning the CFD margin has magnified your profits.

However, exactly the same effect applies to losses – which is why risk management is a key part of CFD trading.

CFD trading means buying and selling contracts for difference (CFDs) to speculate on rising (long) or falling (short) prices of markets such as indices, shares, currencies, and commodities.

The profit or loss is determined by the difference between the entry and exit price, multiplied by the position size – without owning the underlying asset.