Leverage effect with CFD trading of shares, indices and commodities

Thanks to CFDs (Contract for Difference) you trade with a limited investment but with a significant amount in shares, indices and raw material. This can be done, among others, on the Plus500 or IG platform.

CFDs are similar to other leveraging products, like options, but work in a very simple way.

For example: you want to buy 10 Google (Alphabet) shares at 750.00 dollars each. The total amount you would normally pay is: 10 x 750.00 = 7,500 dollars.

When trading with CFDs the initial margin for 10 Google shares on the Plus500 platform is only 10%: 750 dollars.

With an investment of only 750 dollars, you take a position of 10 Google shares. But, you still enjoy the full increase of these 10 shares!

A CFD is a "contract for difference". This means that if Google increases to 800 dollars and you sell these CFDs, you make a 50 x 10 = 500 dollar profit. Your investment of 750 dollars has now become 1250 dollars.

The advantages of CFD trading

• Potential large profits with a limited investment, thanks to the leverage effect
• Making money by speculating on rising and falling markets
• You choose your own stop-loss and the risk you want to take
• You can never lose more than the deposit on your account (for Plus500)
• No transaction costs: the broker makes money on the spread between the bid and ask

Practical example on the Plus500 Web platform: short S&P500

If you think that the S&P500 price is going to fall, then you go short on the index by pressing the "Short" button.

You go short at around 1914.75 points and choose 10 contracts. The total exposure amounts to 19,148 dollars, but you only need a margin of 65 dollars to open this position. You choose a stop point, to make a profit (1900) and a stop loss, to ensure that this position does not turn on you (1922 points), right away.

The position appears in the overview immediately after opening and you see right away how much is your loss or profit.

Open an account

Compare the CFD platforms and try the free demos or open an account right away. With an account you can also trade CFDs for raw materials (oil, gold, silver, platinum, etc.) and on the Forex market (currencies). With the free demo you can practice with a fictitious capital so that you learn how to trade with CFDs and familiarize yourself with the bidder's platform.