CFDs in Detail

What funds do you require to run a CFD position? Primarily your initial margin, which acts as a deposit against potential losses. So how is the margin calculated, and how is this affected by the placement of your stop-loss order?

Trading on margin

What separates CFD trading from traditional types of investment is the ability to trade ‘on margin’. Margin trading allows you to command larger position sizes using only a small deposit. For example, when trading on 10:1 margin, you need only deposit 10% of the full value of the position. You could open a position worth $100 in Microsoft stock and only deposit $10 for that trade.

When trading on margin (also known as taking a ‘leveraged’ position) you can greatly enhance the potential return on your capital. You should note though that margin trading creates an equally large possibility for losses, if the price moves in an unfavourable direction. Experienced traders generally recommend that margin trading is approached with a conservative mindset.

How to calculate Initial Margin (IM)

The Initial Margin (IM) is the amount of unencumbered trading resources required to open your trade. The minimum amount is determined by our minimum IM figure, which varies by market.

For equity and stock index CFDs the IM is calculated as a percentage of the full position value. For example, the minimum IM for the leading UK shares is 3%, so the minimum margin to open a new position is: your opening price x your risk per point x 3%. For example, to buy 100 shares (i.e. £1 per point) at 320.0 you need a minimum of £9.60 on your account (320.0 x £1 x 3% = £9.60).

For forex, commodities, bonds and interest rates, the minimum IM is multiplied by your risk per point/pip to determine the minimum amount required to open your position. For example, the current minimum IM for Gold futures is 100, so if you wish to trade five CFDs (i.e. £5 per point) you need a minimum of £500 available funds on your account (100 x £5 = £500).

Please see our Market Info tables for minimum and maximum IM levels for each market.

How does my stop affect my margin?

Your stop-loss level controls the margin required to open and run your position. The basic rule is that your stop level will always represent a loss equal to 80% of your margin requirement (subject to the minimum and maximum requirements). So you can reduce your margin requirement by bringing your stop closer to your opening level.

If you do not set a stop level when you open your position it will be set automatically, based on the maximum IM for that market. For instance, if you have £1000 in your account and you trade 10 CFDs of the UK 100 cash index (i.e. £10 per point) at 6000, your margin requirement will be £720, as the maximum IM for the UK 100 is 1.2% and £10 x 6000 x 1.2% is £720. We will automatically allocate a stop 57.6 points from your opening level, because 80% of £720 is £57.60. From the £1000 on your account, £720 would be used as margin for this position, and the remaining £280 would be available to use as margin on other trades.

If there are insufficient trading resources to cover the maximum IM, we will allocate the stop level based upon 80% of the total trading resources available on your account. So in the above example, if you have £500 in your account, we will set your stop 40 points from your opening level, representing a loss of £400.

Although the stop does help limit your risk, you should be aware that you could lose more than this amount due to slippage or market gaps unless you choose a Guaranteed Stop.

For more information on margin calculations please see our FAQs.

Your trading currency

When you open a CFD position with your trade is made in the currency of the underlying market. So if you are trading UK equities your trade is made in sterling, if you are trading our Germany 30 your trade is made in euro, and if you are trading US Crude your trade is made in US dollars.

Margin requirements are calculated in your position currency and then converted into the base currency of your account (if necessary). Similarly when you close your CFD position your profit or loss is immediately converted into your base currency (if necessary).

Your cost of trading

The cost to open a CFD position is included in the dealing spread, much the same as with spread betting costs. does not charge a commission on CFDs.

You should however note that, with undated (non-expiring) markets, we may make adjustments for overnight financing or dividend payments, which can be debited from or credited to your account. These are designed to reflect as closely as possible the effects of an actual physical purchase (or sale).

Find out more about CFD Trading Costs, or check out our FAQs to see how these adjustments are calculated.