HOW TO TRADE CFD
Contracts for Difference (CFDs) are a way of trading the price movements of global financial markets without buying or selling the underlying instrument directly. CFDs can be used to speculate on upward as well as downward price movements, so you can profit even if market prices are falling.
As with traditional dealing, CFD prices are quoted as a buy (‘offer’ the price you go long at) or sell (‘bid’ the price you short sell at). The price of your CFD replicates the price of the underlying instrument and you are charged a small commission for each equity trade that you place with us.
Non-equity markets are commission-free but incur a widened spread. Find out more about our financing and charges. All our CFDs are traded in the currency of the underlying market.
Placing a CFD trade using our trading platform
Let’s say you think BT’s share price is likely to rise soon. You decide to trade shares in BT as a CFD, so log into our trading platform to see the prices we’re offering.
To check the live prices for BT, you can use the search field. Either use the inbuilt navigation tree, or start typing the market’s name – a dropdown menu will automatically show all the markets that match. Selecting the market you want will import it into the ‘prices’ panel.
In the ‘prices’ section you’ll see the current bid and offer prices, in the ‘Sell’ and ‘Buy’ columns respectively. You’ll also see other useful information, such as the market’s net change on the day, and the day’s highest and lowest prices. If there’s a date under the ‘period’ column, this is when your trade will expire. If there’s a dash instead, your position will stay open until you choose to close it.
Let’s say you’re happy to deal on the current price. Click on the button and a deal ticket will pop up.
The deal ticket
The deal ticket is pre-populated with the current prices. The bid price is in the ‘Sell’ box, and the offer is in the ‘Buy’ box. The prices constantly update, so you can choose to keep an eye on the ticket waiting for the right price.
Let’s say you want to buy 6000 BT shares as a CFD. At the moment, BT is trading at 199.00/199.50. The price we quote for shares is always the same as the stock exchange’s price. You decide to open your trade at the offer price of 199.50.
Next, you can specify the number of contracts you want to trade. Remember that the contract price depends on the market you’re trading.
Just as if you were trading regular shares, we charge a commission. Our standard commission for UK and Australian shares is just 0.1%.
This means that your opening commission is:
0.1/100 x 6000 shares x 199.50 = £11.97
The bottom half of the deal ticket allows you to add more advanced instructions, but we won’t talk about those at this point.
Once you open your trade, you’ll receive a confirmation message to show that it has been accepted. Trades are occasionally rejected, but the vast majority go through without any problems. Check the details on your confirmation message carefully to make sure the trade is as you intended.
Calculating your profit/loss
Your open trade will now appear in the ‘open positions’ pane in our trading platform. All the time your position is open, you’ll be able to see your profit or loss by checking the profit/loss column.
Let’s say that in a few days’ time, BT’s stock has risen, as you’d hoped. You decide to close your position and collect your profits. To do this, you simply sell the same number of contracts as you bought initially.
The simplest way of doing this is to bring up a ‘close position’ screen by clicking on the green button or market name of the position in the ‘open positions’ pane. When you click on ‘sell’, you’ll receive another confirmation to let you know that you’ve sold that number of contracts.