How to Trade CFDs: Learn How to CFD Trade Online

CFDs allow to trade the price movements of global markets and hedge physical portfolios against potential loss of value.

A CFD price replicates the price of the underlying instrument. When you expect that market prices will rise, you can buy CFDs or go long and make a profit after you close the contract later at a higher price. In case you expect the markets will fall, you sell the CFDs or go short and make a profit later as you close your short position later at lower price.

How to Trade CFDs

The logic of CFD trading is quite simple and is very similar to traditional currency trading.

• The client can buy a certain number of CFDs expecting a rise of the underlying asset’s price.
• The client can sell CFDs expecting a drop of the underlying asset’s price.
• Later on an opposite transaction is made to close position.

This is the first very important feature of CFD trading as profits can be made on both rising and falling markets.

Simple steps on the way to successful CFD trading are:

1. Choose your market

Decide on the market you want to trade on. You can check the group of instruments to choose an option for you, including:

• Stocks
• Forex
• Commodities
• Cryptocurrencies.

2. Select your position - buy or sell

You 'buy' when you think the price will increase in value or 'sell' when you think the market will fall in value. A trading plan that matches your desired profit, maximum risk and loss will help you make better decisions, even if they’re last-minute.

3. Set a trade size

When you have chosen the commodity you want to purchase, decide how many units want to trade.

4. Use a stop loss

A stop loss is set to automatically close your position at a certain price to minimize risks during the trade.

5. Monitor your position and close your trade

Keep monitoring your position even after the trade is placed, since prices may go against you immediately. This way you can exit a trade anytime by just clicking the “close” button, or you can take an opposite trade direction to your original position.

What Are the CFD Prices?

CFD prices are quoted as a bid or ask. When you expect markets will be rising and want to go long, you buy CFDs at ask. You short sell CFDs at bid price when you expect the prices will be falling. On IFC Markets commissions for CFD stocks are charged when opening and closing a trading position from the account. There may also be a funding cost or interest received.

Trade CFDs Online

CFDs are traded on leverage. You can open a position by depositing only a fraction of the total trade value. When markets move in the direction you expected, leverage lets you magnify your profit. The same feature may result in increased losses though if markets move against you, which can result in a Short Margin and even wipe out your deposit. Care must be taken to manage your positions and mitigate this risk.

With IFC Markets you can gain exposure to global capital and commodity markets on our NetTradeX trading platform, which also provides a unique feature of building and trading your own Personal Composite Instruments (PCIs). Stock, Index and Commodity CFDs, totaling more than five hundred trading instruments, are now available in the trading platform NetTradeX for all the clients of IFC Markets.

How to trade Stocks

IFC Markets gives to all its clients the opportunity to trade stocks online and get access to the most popular Stock Exchanges, such the U.S., British, German, Russian, Chinese and Japanese markets.

So, how to trade stocks? Due to CFDs it has become as simple as possible. As mentioned above, the client can either buy a certain number of CFDs expecting an increase of the underlying asset’s price or sell CFDs expecting a fall of the underlying asset’s price. Later on an opposite transaction is made to close the position.

For Stock CFD trading it is necessary to take into consideration that the leverage is different from other instruments, taking into account the possible risks, resulting in it. With IFC Markets the highest possible leverage can be 1:40.

If you are a novice trader and are eager to know how to trade on the stock market through CFDs, you can try a demo account to see how it works on the charts and get more familiar with the instruments. Along with practicing on a demo account, you can take a look at the CFD tutorial that will guide you. For the start you can see small examples of stock trading below.

Stock CFD Trading Examples

A Long CFD Position on Intel Corporation (#S-INTC) – profit example

As investor expects the price of Intel stock to rally in the short term, he deposits $3000 in his trading account. The margin on stock CFDs is 2.5%, which translates into 1:40 leverage, and the trader can increase his potential investment to $120,000. Let us say the price of Intel stock is $30 when the trader buys CFDs, and when it hits $32 he closes his position.

A Long CFD Position on Intel Corporation (#S-INTC) – loss example

As an investor expects the price of Intel to rally in the short term, he deposits $3000 in his trading account. The margin on stock CFDs is 2.5%, which translates into 1:40 leverage, and the trader can increase his potential investment to $120,000.

A Short CFD Position on eBay Inc. (#S-EBAY) - profit example

As new competitors enter the market, an investor considers eBay Inc to be overpriced and expects a fall in the stock price. He deposits $3000 as a margin collateral. The margin on stock CFDs is 2.5%, which translates into 1:40 leverage,and the trader can increase his potential investment to $120,000. (Learn more about What is Leverage in Trading)

Hedging with CFDs

Let's say that you are holding 1000 AAPL (Apple Inc.) stocks and are concerned about the short-term prospects for the company – the release of a new flagship product of the company has been delayed while reports from rival Samsung indicate an impending release of their newest model. The current Apple stock price is $100.00. These stocks are your ‘core’ holding, you expect the company to retain its leading position and you don’t want to sell your Apple shares.

How can you protect your stock holdings using CFDs?

By going short with Apple CFDs (#S-AAPL), you can hedge against stock price falls.
You sell 1000 Apple CFDs at the bid price of $100. According to the Trading conditions in our website, the commission rate for US stocks is 0.02 cent per stock for opening and closing positions, and the margin is 2.5%.

To summarize, as Apple stocks fall to $95.50 from $100.00, you lose on your long 1000 Apple stocks and gain on short 1000 Apple CFDs, which offset each other:
Loss on long 1000 AAPL stocks: ($95.50 - $100.00)x1000 = -$4500
Gain on short 1000 AAPL CFDs: ($100.00-$95.50)x1000= $4500 (minus commission of $40.00)

It should be noted that the reverse effect is also true – if Apple stocks rise, any profit on your stock holding will be offset by a corresponding loss on your CFDs, and you will be required to provide extra margin cover. In the example above, however, you have effectively insured against $4,500 loss on your Apple stocks for the cost of $40.00 in commission.

*To open and close positions in stock CFDs IFC Markets charges the commission of 2 cents per stock.