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.
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.
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.
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.
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).
Your leverage or initial margin calculations also differs across our key products; CFDs and forex.
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%).
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).
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The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. City Index recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. City Index Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.