CFDs vs FX

  • At City Index, we offer forex trading and CFD trading across a range of powerful and innovative trading platforms which have been designed to maximise your trading potential.

    The fundamentals of forex trading and CFD trading are in fact very similar but there are some key differences. For example, to help cater for all of your trading needs, we offer forex trading via separate trading platforms to our CFD offering.

    This section aims to identify those key differences and help you to decide which trading account to open with us.

    Key differences:

    • Range of Markets: CFDs offer a broader range of markets to trade including indices, stocks and forex, whilst forex trading offers pure currency trading only on 37 forex pairs.
    • Trading Platforms: As a forex and CFD client, you can trade all of our platforms including download, browser-based, mobile and tablet. However, MT4 is only available to forex clients.
    • Commission: With CFD equity trades only you are charged a small commission for each trade you place. For all other CFD markets and forex trading, trades are free from commission.
    • Guaranteed Stop Losses: This is available via the CFD platforms only. For forex trading, standard stop losses are available.
    • Trade Sizes: Trade sizes differ across forex and CFDs. For more information, please see the table below.
    • Greater Leverage: City Index forex traders can trade the forex markets from a leverage ratio scale of 20:1 to 400:1, meaning you can trade our forex pairs up to a margin equivalent of 0.25%, greater than what is currently offered for forex markets via our CFD platforms.
    • Margin/Leverage calculations: All forex trades are undertaken with a leverage ratio such as 100:1. However, CFD markets are margined in a different way, as either fixed percentage such as 5% or margin factor such as 60 x stake.

    At City Index, we seek to cater for all client needs and our ability to offer forex trading and CFD trading helps us to give you a greater range of markets and better trading flexibility.

      Forex CFDs
    Range of Markets 37 FX pairs only Thousands of markets including shares, indices, FX and commodities
    Commission Free Equity markets only
    Widened Spread Yes Non-equity markets only
    Trade Size Lots CFDs
    Minimum Trade Size 1 lot of 5,000 1 CFD
    Margin/Leverage Leverage ratio i.e. 100:1 Percentage i.e. 1%
    Platforms Available All browser, download, mobile and tablet including MT4 All browser, download, mobile and tablet except MT4
    Risk Management Order Standard tools available, including Stops Losses Full tools available including Guaranteed Stop Losses
    Demo Account Yes Yes

    Volatility in the forex markets can bring ample opportunity to speculate and profit from forex price movements. However, there is always the possibility that your trades could go against you and this could net you a loss. Trading forex carries a higher degree of risk and is not suitable for all investors.

    Examples of key differences between CFDs and Forex

    The two key differences in the mechanics between CFDs and forex trading relate to leverage and trade sizes. Below you can find out more information about both of these two key differences.

    Trade sizes and notional value examples

    The mechanics behind your trade size, or ‘quantity’, and how this correlates to your trade notional value differs across CFDs and spot forex accounts. As the table above denotes, forex trade quantities are placed by lot sizes and CFD trade sizes by the amount of CFDs.

    CFD trade sizes

    If you wanted to buy Company ABC shares through a CFD trade, which is still trading at 550cents, you could go and buy 1000 CFDs. This means that your profits or losses (P&L) will increase for each cent Company ABC shares rally or fall. Your total P&L is calculated as the difference between the opening value of the contract to the closing value of the contract.

    The notional value of the CFD trade is AUD5,500 (1000 CFDs x 550cents).

    Forex trade sizes

    Forex trades operate very differently to your typical CFD trade size. However, each forex trade is placed per lot size, I.e.10,000, and this is the amount that you are either buying or selling in a currency trade.

    For example, let’s say you want to buy AUD/USD as you believe the Aussie dollar will strengthen or ‘appreciate’ against the US dollar. You choose to buy 1 lot of 10,000 at an indicative price of 1.0501. For each 0.0001 that the AUD/USD rate rallies, you will net 0.0001 x 10,000 gain.

    The notional value of the trade is 10,500 US dollars (10,000 x 1.0501).

    Leverage examples

    Your leverage or initial margin calculations also differs across our key products; CFDs and forex.

    CFD trades

    The amount of margin charged initially for CFD trades is a fixed percentage of the trades notional value.

    For example, if you were to place a sell CFD trade of 1,000 on Company ABC’s shares price, with it currently trading at 549cents and has an initial margin rate of 10%, you would be charged an initial margin of AUD549 (1,000 x 549 / 10%).

    Forex trades

    The amount of margin charged for forex trades is worked differently to CFD trades. Each forex trade is placed at a specific leverage ratio dictated by you, i.e. 100:1. 

    It is the leverage ratio which plays a key role in how much margin your trade is charged and as such, by being able to dictate your leverage ratio for forex trades, you can gain greater control over your trading. This is one key difference between a forex trading account at City Index, and a CFD trading account.

    For example, if you wish to buy 10,000 of GBP/USD, which is trading at an indicative price of 1.5850 and decide a leverage ratio of 100:1, you would be charged an initial margin of $158.50 (10,000 x 1.5850 / 100). If however you had decided upon a leverage ratio of 400:1, which is our highest leverage ratio, you would be charged an initial margin of $39.63 (10,000 x 1.5850 / 400).