CFD Education

CFD Education covers all you need to know about trading Indices, Stocks and Commodities. CFDs include such popular commodities as Oil and Gold, and Major Indices such as Dow Jones and DAX 30.

CFD Trading

CFD (Contracts for Difference) offers leveraged long/short trading on almost every financial instrument. It is an inexpensive trading option to trade the change of price in multiple commodity and equity markets, with leverage and immediate execution.

Markets.com offers a wide range of CFDs giving you access to commodity markets - such as Oil, Agriculture and Precious Metals – and worldwide equity markets indices – such as FTSE 100, Dow Jones 30, S&P 500 and Hong Kong Hang Seng Index.

For a complete list of indices and commodities offered by Markets.com, please visit the CFD Trading Conditions page.

What is a CFD?

A CFD is a Contract agreed between you and your broker to exchange, at the closing of the contract, the Difference in price between the opening and closing price of the underlying instrument.

This means that in CFD dealing, you do not physically buy or hold the underlying asset; you trade a contract whose value captures every change of the price of the underlying asset.

How does a CFD work?

  • Margin

    CFDs are dealt on a margin basis and you secure the transaction by paying a deposit. This means that when you open a position, you do not have to pay for its full value. Instead, you put up a deposit from 1% to 2% (depending on the contract’s margin requirement), which enables you to trade up to 100 times your initial capital (leverage of up to 100:1).

  • Trading and Pricing

    CFDs are traded in units that vary depending on the CFD itself. For example:
    • Oil is traded in barrels (bbl)
    • Wheat is traded in bushels (bu)
    • Coffee is traded in pounds (lb)

    All units are set to a standardized quantity known as a “lot”. A lot represents the minimum quantity, which can be traded in any given instrument.

    CFDs are quoted as seen in the underlying market. So for example, stock indices and commodities are quoted and traded in their base currency. The FTSE100 CFD is quoted in Pounds and the S&P500 in Dollars.

  • Overnight Interest adjustments

    When you leave a CFD position opened overnight, you pay or receive daily interest adjustments depending on whether you have a long or a short position. These adjustments represent the financing fees for Markets.com to maintain your position opened.

    The Markets.com Financing Charge is 1.5% and overnight interest adjustments are calculated in accordance with the following formula:
    Overnight rollover = (Interest Rate Differential – Financing Charge)/36000 x Base Value x Units per Lot x Relevant Exchange Rate.

  • Expiration of underlying instrument (Roll Overs)

    Unless otherwise specified, the underlying instrument of a CFD has an expiration date. However, you should be aware that CFDs are not traded up until the exact expiration date of the underlying instrument. Instead, CFDs are rolled over to the next underlying Future Price during the last weekend (before the official expiration day). This is known as the expiration rollover.

    If there would be any substantial price difference between the two Futures, an adjustment will be Credited or Debited from the balance of your account subject to the open position amount of the expiring CFD. This Adjustment will show up in your account under Rollover Charge and will not affect the real value of your Equity.

    However, you should be aware that the switch between the two Future prices of the underlying CFD could involve a substantial price difference. Therefore, Entry Orders might be filled on Market rates rather than on the predefined rates.

    If you do not want to incur the price adjustment or any implication of the underlying CFD rollover, you can close your position(s) and/or cancel Orders before the rollover date and open a new position afterwards. Markets.com, at its best effort, will inform customers about any projected expiration of instruments by Popup, email, or through the site.

CFD trading examples

CFD Trading Example – USA 30

An investor deposits $100 000 in a Markets.com Trading Account and wants to trade USA30.

The Trading conditions of USA30 are shown below:

The investor expects an upwards trend of USA 30 and decides to go LONG.

While the Minimum trading amount is 1 Unit, client opens 10 Units

Due to the leverage of 1:50 the investor is able to open a position worth 198 395.0 USD with minimum equity of 1984.55 USD. An initial margin of 1.0% that is needed for opening this position.

To maintain this position a maintenance margin of 0.2% is needed. If available equity drops below 396.91 $, this position will be closed automatically.

The current Price:

Since investor wants to go long, the position will open with the ASK price and close with the BID price.

Value of purchased securities: (Quantity* Price) = 10* 19845.50 = $ 198 445.00

Initial margin: (Quantity*Opening price*initial margin %) = 10 * 19845.5* 1% = 1984.55 USD

Maintenance margin: (Quantity*Opening price*maintenance margin %) = 10 * 19845.5* 0.2% = 396.91 $

Required Margin: ((Quantity*Open Price)/Leverage) + Spread = ((10* 19845.50)/50) + 20 = 3989.1$

Once Investor opens this position, the open position will be reflected on his Equity, free Margin and Open P&L

Balance = Deposit ($100 000) + Sum of Realized Profit & Loss ($0)

Equity = Balance ($100 000) + Sum of Unrealized Profit & Loss ($-20)

Free Margin = Equity ($99 990) – Sum of Required Margin (398.91$)

Open P&L = Sum of P&L of all open position (-2$) + Sum of overnight swaps ($0)

Day 2

The market moved in favor of the investor and causes a positive P&L.

The current Prices are 19899.50 & 19897.5

P&L (BUY) = (Current Price -Open Price)*Quantity = (19899.50 - 19845.50)*10 = 540 USD

The price movement will be reflected permanently on clients Equity, free Margin and Open P&L

Balance = Deposit ($100 000) + Sum of Realized Profit & Loss ($0)

Equity = Balance ($100 000) + Sum of Unrealized Profit & Loss ($ 540)

Free Margin = Equity ($100 054) – Sum of Required Margin ($396.91)

Open P&L = Sum of P&L of all open position ($ 540) + Sum of overnight swaps ($0)

Day 3

The US Non-Farm Payroll numbers came out worse than expected – unemployment rate is rising. This had a bearish effect on USA 30 which dropped to 19825.50

Investor decides now to close the position.

Realized profits: (Closed Price – Open Price) * Quantity = (19825.50-19845.50)*10 = $ - 200

Client had a loss of 200 $.

Balance = Deposit ($100 000) + Sum of Realized Profit & Loss ($ -200)

Equity = Balance ($99 800) + Sum of Unrealized Profit & Loss ($0)

Free Margin = Equity ($99 800) – Sum of Required Margin ($0)

Open P&L = Sum of P&L of all open position (0$) + Sum of overnight swaps ($0)

CFD Trading Example – OIL

An investor deposits $100 000 in a Markets.com Trading Account and wants to trade Oil.

The Trading conditions of Oil are shown below:

The investor expects a downwards trend of Oil and decides to go Short.

While the Minimum trading amount is 10 Units, client opens 1000 Units.

Due to the leverage of 1:50 the investor is able to open a position worth 51 985.00 USD with a minimum equity of 520.30 USD. The initial margin which is needed to open an Oil position is 1%

To maintain this position a maintenance margin of 0.20% is needed. If available equity drops below 104.06 $, this position will be closed automatically.

The current Price:

Since investor wants to go short, the position will open with the BID price and close with the ASK price.

Value of purchased securities: (Quantity* Price) = 1000 * 52.03 = $ 52 030

Initial margin: (Quantity*Opening price*initial margin %) = 1000 * 52.03 * 1% = 520.30 USD

Maintenance margin: (Quantity*Opening price*maintenance margin %)= 1000 * 52.03 * 0.2% = 104.06$

Required Margin: ((Quantity*Open Price)/Leverage) + Spread = ((1000 * 52.03)/50) + 30 = 1070.6$

Once Investor opens this position, the open position will be reflected on his Equity, free Margin and Open P&L

Balance = Deposit ($100 000) + Sum of Realized Profit & Loss ($0)

Equity = Balance ($100 000) + Sum of Unrealized Profit & Loss ($-30)

Free Margin = Equity ($99 970 – Sum of Required Margin (1070.6$)

Open P&L = Sum of P&L of all open position (30$) + Sum of overnight swaps ($0)

Shortly after client opened the position

The market moved in favor of the investor and causes a positive P&L.

The current Prices are 49.93 & 49.96

Investor decides now to close the position.

Realized profits: (Open Price - Closed Price ) * Quantity = (52.03-49.96)*1000 = $ 2070

Client made a profit of 2070 USD

Balance = Deposit ($100 000) + Sum of Realized Profit & Loss ($ 2070)

Equity = Balance ($102070) + Sum of Unrealized Profit & Loss ($0)

Free Margin = Equity ($102070) – Sum of Required Margin ($0)

Open P&L = Sum of P&L of all open position (0$) + Sum of overnight swaps ($0)

Trading CFDs carries risk and could result in the loss of your deposit, please trade wisely. Read full Risk Disclosure.
Please note that the materials are offered for promotional purposes and do not entail any obligation to purchase investment services from the firm.