Trade the price difference without owning the asset: long and short, leverage and required margin, margin level, margin calls and stop-out, financing fees and gap risk.
For: learners who understand leverage and want a solid grasp of CFD risk (take "Forex Basics" first)
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
This course uses ideas from the courses below (optional; you can start right away).
You don't buy the asset itself. You simply agree with the platform to settle the price difference between opening and closing.
Shorting a CFD is as easy as going long: if you're bearish, sell to open, and profit when the price falls.
Leverage = position value ÷ required margin. For the same position, leverage only changes how much money you put up, not the P&L from price moves.
Required margin = position value ÷ leverage. The bigger the position, the more margin is locked up, and the more you lose on the same move.
Margin level tells you how far your account is from the danger line. As soon as positions show an unrealized loss, equity falls and the margin level drops with it.
As the margin level keeps falling, you first get a margin call warning; go lower still and the platform closes your positions automatically.
With the same $1,000 of margin, losses can differ by 2x; at the same leverage, a position 5 times bigger means losses 5 times bigger.
Holding a CFD overnight means paying (or receiving) a financing fee. The longer you hold, the less you can ignore it.
One piece of weekend news, and on Monday the price opens straight past your stop. CFD risk doesn't only come from leverage.