CFD Leverage Trading | Margin Trading

CFDs are a leveraged product allowing you to potentially maximise returns without having to deposit the full value of the contract you are trading.

*Leveraged trading can be risky so always ensure you have a full understanding of what you are trading, what moves your market and whom you are trading CFDs with!

Trading on leverage or margin trading

CFD Trading has grown in popularity in recent years, not least because of the advantages it brings when looking at the levels of deposits that are required to open a position on a stock, index, forex pair or commodity.

Buying a physical share with a stockbroker requires an investor to deposit the full value of the contract with their broker whereas CFD brokers require only a small percentage of the full contract value to be deposited at the time the trade is opened. This is called trading on leverage or margin trading.

FOR EXAMPLE

If you chose to buy £10,000 of Vodafone shares with a stockbroker you would be required to deposit the full £10,000 with them before your trade can be accepted.

A CFD provider would typically ask for a deposit of 5 or 10% of the value of the trade, so in this example you may find a CFD broker requests a deposit of as little as £500 for you to be able to receive the same exposure to Vodafone stock as you would trading the physical share.

This allows the trader to keep the additional funds in other accounts that may bear better rates of interest thus improving overall returns.

A word of warning: know your limits

One of the biggest mistakes made by new traders is to increase their exposure to the market beyond their levels of financial means and thus put themselves at risk of losing more money than they can afford.

FOR EXAMPLE - AGAIN

If we look at the previous Vodafone example, in theory someone with a deposit of £10,000 could go to a CFD provider and gain exposure to £200,000 worth of Vodafone shares (£200,000 x 5% = £10,000 deposit).

If Vodafone were to drop by 20% in one day (unlikely yes, but never completely discount these situations) you would be liable for an additional £30,000 to cover your position with your CFD broker. Quite often these payments have to be made within 24 hours so if you have leveraged yourself beyond your means how are you going to pay? Remember that contract for differences are legally binding and so you are liable for any losses you incur.

Leverage can be your friend but respect it and never over extend yourself. Funds that are not placed on deposit with your CFD broker should be kept in a liquid, easy to access account so that in the eventuality you are asked for more funds to cover a losing position you can do so easily.

Further resources on CFD trading

Comparing CFD brokers

Below is a table of CFD brokers with a few key account-opening criteria that we believe should be considered when you are deciding which broker to open an account with. It's not always about price; finding a broker that suits your style of trading and your technical requirements is as, if not more, important than shaving a few pence off of your dealing costs.

Start comparingCFD brokers

Commission Rates (UK Equities)	Broker Features	Apply
0.1%	News Mobile Trading Demo Account Charting Research Account Opening Online Market Maker Trading Execution Service API/FIX Connectivity	Applyfor account Demothe platforms Learn more about GFT
0.1%	News Mobile Trading Phone Trading Demo Account Charting Research Account Opening Online Account Opening Download Account Opening Brochure Available DMA Trading Market Maker Trading Execution Service API/FIX Connectivity	Applyfor account Demo unavailable Learn more about IG Group
0.075%	Demo Account Charting Research Market Maker Trading API/FIX Connectivity	Applyfor account Demo unavailable Learn more about Gekko Global Markets