CFD Trading Online

A contract for difference is a derivative product. By this, we mean the contracts take their value from how well an underlying asset performs in its respective market. Such contracts are usually time-limited and exist between you, the trader, and us as a CFD broker. Check out our guide to contracts for difference for more insight.

With an FXCM CFD account, you can trade a comprehensive range of assets without the need to own them. You can choose from some of the most popular currency pairs, high-value shares or in-demand commodities. If the price of an asset or market is prone to go up or down, you could use CFD trading to speculate on that movement. It's your portfolio. The choice is yours.

Like CFDs, futures are a way that you can trade various global markets. Both are derivatives – and both involve a contract between a buyer and a seller. The main difference is that futures will involve buying and selling the underlying asset. This is done for a set price at a set date in the future – no matter what happens to the value of the asset or market in the meantime.

Note that FXCM does not offer futures products.

This is one characteristic of CFD trading that appeals to new and experienced traders alike. The concept of 'leverage' means that you have full exposure to the chosen market – but only need to put forward a small deposit to open your position.

At FXCM, we can offer different leverage based on what you're looking to trade. For one of the major currency pairs, for example, you'll get 30:1 leverage – trading with £10,000 in the forex market with an initial security deposit of as little as £334.

Margin is the amount you will need in your online CFD trading account to open and maintain a position. This amount will often differ based on the markets you're looking to gain exposure to. It'll be shown as a percentage too, which tells you how much you'll need to offer as a deposit.

A small cushion is also factored in so that daily/weekly fluctuations can be accommodated. At FXCM, we use a Tiered Margin system – comprising your Entry/Maintenance Margin and your Liquidation Margin. If your account falls below a certain level, your positions will all be closed.

Read our in-depth guide to what margin is.

CFD traders have the option of going long or short when opening a position. By going long, you are ultimately entering into a contract to buy in the expectation that an underlying asset's price will go up. As for going short, you'll be choosing to sell with the expectation the price will fall.

Long CFD trade example: You choose to purchase 10,000 CFDs on an asset currently trading at US$3.50 – taking a position worth US$35,000. If the asset rises in price to US$3.65, closing the position worth US$36,500 will generate a gross profit of US$1,500.

Short CFD trade example: A seller offers 10,000 CFDs on an underlying asset priced at US$2.35. That price then drops to US$2.17 – generating a gross profit of $1,800.

Of course, a CFD trader will incur losses if either of the two example situations were reversed.

CFDs provide a linear payoff: a rise or decline in the underlying asset will result in an equivalent rise or decline in a trader's account balance. Also, unlike options, there are no initial premiums that need to be paid. Another benefit to hedging with CFDs is that there are fewer trading restrictions and no need to obtain access to multiple exchanges.

The Spread is the difference between the Buy Price and the Sell Price for any instrument, and is displayed in pips. FXCM quotes spreads, which you can view at any time in the Dealing Rates window of your Trading Station.

There are also nightly financing debits and credits that are applicable. These debits and credits apply to all positions held at 5PM EST, just like on a Forex position. You can see how much you will pay or earn for every contract held at 5PM EST in the RollS and RollB fields in your Trading Station's Dealing Rates window. You can read more about how Finance Charges are calculated in the CFD Product Guide. Please click here to view a table that indicates how many days of rollover will be applied to open positions at 5pm EST on each trading day.

To make a profit when trading CFDs, the price of the underlying asset has to move the way you expect it to. So, if you go long on the price of Tesla shares, you'll make a profit if the price goes up before you close your position. Similarly, you'll make a profit when you go short on global oil prices if they fall between you opening and closing your position.

If a price moves against you while your position is open, you stand to incur losses.

In a lot of cases, there will be no fixed expiration date on a CFD trade. So, you're able to keep a position open for as long as you choose. Your trade only closes when you choose to do so – or if it reaches an automatic trigger. For positions held overnight, however, an extra charge applies.

It's worth noting that some CFDs do have an expiration date.