How to trade CFDs

Find out more about Contract for Difference (CFD) trading at City Index.

How to place a CFD

With the ability to trade on falling markets, use leverage and access thousands of instruments, some trading 24 hours a day, investors are taking advantage of the versatility of CFDs as part of their portfolio.

CFD trading steps

  • Choose a market
    Decide which market you want to trade on. You can get trading inspiration through our fundamental and technical analysis research portal
  • Decide to buy or sell
    Click 'buy' if you think the price will increase in value or 'sell' if you think the market will fall in value
  • Select your trade size
    Choose how many CFDs you want to trade. 1 CFD is the equivalent of 1 physical share in equity trades
  • Add a stop loss
    A stop loss is an order to close your position out at a certain price if it moves too far against you
  • Monitor and close your trade
    Once you have placed your trade, you will see your profit/loss update in real time at the top of the screen. You can exit your trade by clicking the close trade button

CFD trading explained

Choosing a market

At City Index, we offer CFDs on thousands of individual markets including shares, indices, currencies, commodities, interest rates and bonds, allowing you instant exposure to major global markets including the UK, US, Europe, Asia, Australia and New Zealand.

With so much choice, it is important to find a trading opportunity that suits you. You can use the research tools provided on the trading platform to help you identify trading opportunities that match your trading style.

Use the search function on the platform or app to search and select your market. Learn more about our research tools here.

Decide to buy (go long) or sell (go short)

Once you have chosen a market, you need to know the current price. You can do this this by bringing up a trading ticket in the platform.

CFD markets have two prices. The first price quoted, is the sell price (the bid), and the second price is the buy price (the offer). The difference between the two is known as the spread. The price of your CFD is based on the price of the underlying instrument.

If you believe a market price will go up, you buy that market (known as going long). If you believe it will fall, you sell the market (going short).

Select your trade size

With CFD trading you select the number of CFDs you wish to trade.

With equity trades, 1 CFD is equivalent to 1 share. When trading indices, FX, commodities, bonds or interest rates, the value of 1 CFD varies depending on the instrument. You can see which number you are trading on by looking up the 'tick value' in the instrument's market information sheets. CFDs are traded in the base currency of the market.

CFD trading is a leveraged product which means you only need to have a small percentage of the overall trade value, known as margin, in your account in order to open the trade. Generally speaking, the larger the value of your trade, the more margin required. It is important that you have sufficient funds in the account to place the trade. The margin calculator in the trading platform will automatically calculate your initial margin for you.

Add stop and limit orders

Before you place your trade, it's important to consider your risk management strategy.

A key risk management technique is to place an order such as a stop loss that will automatically close the trade if the market reaches a certain level.

A stop loss order is an instruction that allows the platform to close your open position once it reaches a specific level set by you. This will, as the name suggests, be at a price below the current market level and be triggered on losing trades to help minimise losses.

Stop loss on CFD trade

A limit order is an instruction to close out a trade at a price that is better than the current market level and is used to help lock in profit targets.

Standard stop losses and limit orders are free to place and can be placed in the dealing ticket when you first place your trade or once your trade is open.

Monitor your trade

Having placed your trade and any stops or limits, your profit and loss of your CFD trade will now fluctuate with each move in the market price.

You can track market prices, see your profit/loss update in real time and add new trades or close existing trades from your computer or by using our trading app on your smartphone or tablet.

Closing your trade

Once you are ready to close your trade, you need to do the opposite trade to the opening trade or select the 'close position' option within the positions window.

By closing the trade, your net open profit and loss will be realised and immediately reflected in your account cash balance.

This will be done for you if your stop loss or limit order has not been triggered.

CFD examples

Review the CFD trading examples to see how CFD trading works in practice.

Next chapter CFD trading example

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