Unlike traditional dealing, CFD trading enables you to trade the markets by paying just a small fraction of the total trade value.
In conventional dealing, you would have to pay your broker the total value of the shares you wish to purchase. Say you wished to purchase 10,000 Barclays shares and the current value of its shares is 160p. You would have to pay the total value of the shares purchased, i.e. £16,000 (10,000 x 160p).With CFD trading, however, you only have to deposit a small percentage of the total trade value whilst maintaining the same level of exposure. If we charge our margin rate for Barclays of 15% of the total trade value, you would need to only deposit an initial £2,400 (10,000 x 160p x 15%) plus commission to trade the same £16,000 exposure.
Our typical share margins range from 4% to 25% on our most popular shares whilst our margins for indices CFDs such as the UK 100 and Wall Street start at just 0.5%. Our margins for major currency CFDs and commodity CFDs start from just 1%. Please be aware that some CFD contracts incur a small overnight financing charge. Find out more about our financing and charges.
By only having to deposit a small fraction of the total trade value whilst maintaining a full exposure, you can magnify your gains. In the above leverage example, you only need to make an initial deposit of £2,400 plus commission whilst maintaining a total exposure of £16,000. Were Barclays' share price to rally 10% in your favour, you would net a profit of £1,600. This represents a return on investment of 66% even though the share price has only moved 10%.
As with all forms of financial trading, there is the potential to lose all or part of your investment. The key risk with leverage is that it can magnify your losses in exactly the same way as your gains. Were Barclays' share price to go against you, your net loss could be more than your initial deposit. However, your City Index CFD trading account includes a range of risk management tools to help you manage your risk. Find out more about CFD trading risks.
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