LSE Spreads

How Do I Trade CFDs?

There are two main ways in which you can make a profit from trading CFDs:

1. Buy at one price then sell at a higher price

For example, if you were to buy Microsoft CFDs at 18.00 and then sell Microsoft CFDs at 18.50, you would make a trading profit of 50 cents per CFD bought, and then sold, at these prices.

2. Sell at one price then buy at a lower price

For example, if you were to sell Spot Gold CFDs at $930.00 and then buy Spot Gold CFDs at $920.00 you would make a trading profit of $10.00 per CFD sold, and then bought, at these prices.

There are two main ways in which you can lose from trading CFDs:

1. Buy at one price then sell at a lower price

For example, if you were to buy Microsoft CFDs at 18.00 and then sell Microsoft CFDs at 17.80, you would make a trading loss of 20 cents per CFD bought, and then sold, at these prices.

2. Sell at one price then buy at a higher price

For example, if you were to sell Spot Gold CFDs at $920.00 and buy Spot Gold CFDs at $940.00, you would make a trading loss of $20.00 per CFD sold, and then bought at these prices

Margin requirement

We will require you to dedicate trading resources for each of your open CFD trades. These resources must be equal to a percentage of your trade size and are referred to as the "margin requirement".

Because CFD trading does not require you pay the entire amount of your trade size, it gives you the ability to increase the level of your exposure to a financial instrument, by using this leverage. As a result, this means that you can trade a larger position than you would be otherwise able to if you were trading in the underlying physical market. Leverage has the effect of magnifying the profits or losses on your trading capital. The leverage available to you will depend on the underlying financial instrument that you are trading in.

Margin rates and position size

The level of margin that you are required to have in order to open a trade and keep that trade open depends on two different factors:

1. The Margin Rate

Different underlying instruments have different margin rates that apply to them, and are always expressed as a percentage. For example, the margin rate for Microsoft CFDs could be 5%.

2. The Position Size

The Position size = (contract price) x number of contracts

Calculating margin requirements

The margin requirement for a position is determined by multiplying the relevant margin rate for the product by the CFD position size:

Margin requirement = (position size) x (margin rate)

e.g. If the margin rate for US30 is 5% and you buy 5 US30 at 7700, then the position size is $38,500 and the margin requirement ($38,500 x 5%) is $1,925.

Margin requirements fluctuate

Margin requirements fluctuate along with position size. As the price of the Microsoft (MSFT) CFD rises from $25.00 to $30.00, the position size increases from $2500 to $3000 and the margin requirement rises at the same time from $125 to $150. Similarly, as the price of the Microsoft (MSFT) CFD drops to $20.00, the position size drops to $2000 and the margin requirement falls at the same time to $100.

Account valuation

Your account valuation is equivalent to the approximate value of your account if you were to close and match all of your positions and withdraw all of your funds.

Account valuation = cash balance + open P&L + (closed P&L or unmatched P&L)

Trading resources

Your trading resources represent your financial resources that you have not used for filling margin requirements. Your trading resources are available to you to post margin for new positions.

Trading resources = account valuation - margin requirements

Margin call

We may issue you with a margin call at any point in time when the amount in your account falls below the level of margin that you are required to have for all your open positions at such time. You may receive a margin call by email, telephone or text message. It is a request for you to either close part or all of your open positions or to top up your account with additional cash, and to increase your account valuation.

Margin calls are a way of making you aware that you don’t have enough funds in your account to support the open positions that you have and to let you know that if you wish to continue to keep the positions open, you need to either inject additional funding into your account, or to reduce your positions. You need to take steps to respond quickly to a margin call, in order to seek to stop your open positions being liquidated.

Liquidation

Liquidation is the term used to refer to the situation where your open positions are closed or reduced by us. It happens when the funds in your account fall significantly below the level required to maintain your margin requirements.