Learn About CFD Trading
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Order types
An order is an instruction to trade that will be activated only if and when your specified price level is reached.
Orders are flexible trading tools that allow you to fully or partially open, close, or amend positions. We offer a range of orders to help you open and close positions at the price you want to and as such they are one of the tools for managing risk when CFD Trading.
Limit orders
A Limit Order is an instruction to buy or sell a market when it reaches a price that is better than that prevailing, at the time of the placing the Order. It can be used to open a new position, where you anticipate a more favourable market price (buy or sell). It can also be used to close an existing Open Position, when a market reaches a certain level.
E.g. If our quote for UK 100 Rolling Spread is 5873.8 / 5875.8
To open a new position:
If you thought the market was going to reach 5700.5 and then reverse and go higher, and you had no Open Position in the market, you would leave a new Limit Buy Order at 5700.5. If the price reaches 5700.5 or lower, then the Order is activated and you would have a new long (buy) position in the market.
To close a position:
If you were long (had a buy position) in the market and wished to take your profit when the market reached 5950.8, you would leave a linked Limit Sell Order at 5950.8, which would activate when the Sell price hit 5950.8 or higher. If activated, this Order would close your position and realise any profit (or loss if you opened your position above 5950.8.).
Stop orders
A Stop Order is an instruction to buy or sell a market at a price which is worse than that prevailing, at the time of placing the Order. It can be used to open a position if you think a market could move even higher once it moves above a particular level (when buying), or even lower if it moves lower than a particular level (when selling). Stop orders can also be used to close a position (a tool for managing risk).
E.g. If our quote for Australian 200 CFD is 5100 / 5106
To open a new position:
If you felt that if the market traded up to 5150 and it would continue even higher, then you would leave a new Stop Order to Buy at 5150. If the Buy price hit 5150 or higher, the Order would execute and open a long position.
Stop loss orders
A Stop loss order is an instruction to buy or sell a market at a price which is worse than the opening price of an open position (or worse than the prevailing when applying the stop loss to an existing open position). It can be used to help protect against losses.
E.g. If our quote for Australian 200 CFD is 5100 / 5106
To close a position using a stop loss:
If you were long in the market and wished your position to be closed if the market went beneath 5000, then you would leave a Stop Loss Order linked to that position to Sell at 5000. If the price fell to 5000 (or lower) then the Stop would be executed and close that position.
Please note that there is a risk that market gapping may occur. If this does occur, the best available price could be significantly lower (or higher) than the price set on the order. In order to avoid this, Guaranteed Stop Losses may be used.
Guaranteed stop loss order
This is exactly the same as a Stop loss order, with the added benefit of a guarantee, that means even if the market gaps, you will close your trade at the exact price specified on your stop loss order. There is an additional charge for this service, and guaranteed stop loss orders are not available on all markets.
Comparison: CFD Trading vs Share Dealing
CFD Trading ties up less of your capital and may be favourable for short-term equity investments. (Below figures given as example)
| Interactive Investor CFDs | Interactive Investor Share Dealing | ||
|---|---|---|---|
| If the shares had decreased in value, of course, there would have been a corresponding loss. | |||
| 1. A typical long equity CFD transaction (you can also sell short) |
2. A typical equities share dealing trade |
||
| Vodafone CFD quote (same as share price) |
Bid 139.75p Offer 140p |
Vodafone share price quote |
Bid 139.75p Offer 140p |
| Opening Trade - BUY | Opening Trade - BUY | ||
| Buy price | 140p | Buy price | 140p |
| Number of CFDs | 3,000 | Number of Shares | 3,000 |
| Underlying value of shares | £4,200.00 | Underlying value of shares | £4,200.00 |
| Stamp Duty | £0.00 | Stamp Duty (0.50%) | £21.00 |
| Commission (min. £15, 0.15%) |
£15.00 | Commission (flat fee) |
£10.00 |
| Margin Requirement (10% deposit) | £420.00 | Initial Investment | £4,200.00 |
| Total debited to your CFD account (margin + commission) | £435.00 | Total debited to your Share Dealing account | £4,231.00 |
| with CFDs you don't pay the full value of your trade up front | |||
| Closing Trade (3 days later) | Closing Trade (3 days later) | ||
| Vodafone CFD quote (same as underlying share price) |
Bid 145p Offer 145.25p |
Vodafone share price quote | Bid 145p Offer 145.25p |
| SELL price | 145p | SELL price | 145p |
| Underlying value of sale | £4,350.00 | Underlying value of sale | £4,350.00 |
| Commission (min. £15, 0.15%) | £15.00 | Commission (flat fee) | £10.00 |
| 3 days financing at 4.5% (LIBOR 2% + 2.5%) | -£1.60 | Although there is no charge for financing a share trade, all your funds are tied up until you sell | |
| Overall Profit on Trade | £118.40 | Overall Profit on Trade | £109.00 |
| Gain on initial Margin Requirement of £420.00 | 28.19% | Gain on initial investment of £4,200.00 | 2.57% |
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