Leverage and Margin in CFD Trading

CFD trading, unlike traditional share dealing allows you to invest in companies whilst only paying a small fraction of the total trade value.

CFD Trading Leverage and margin

CFDs use leverage to maintain the same value of exposure as traditional share dealing whilst only depositing a small percentage of the trade value.

For example, trading Vodafone (VOD.L).

In traditional share dealing: Say you wanted to purchase 10000 shares at a price of 200p you would need to pay the total value of shares purchased eg ( 10000 x 200p) = £20000

Using CFD trading margin: Say the margin rate for Vodafone was 15%, to purchase the same exposure in Vodafone as purchasing 10000 shares you would only need to pay a small fraction of the total purchase eg ( 10000 x 200p x 5%) = £1000

The initial margin requirement usually varies from instrument to instrument and for example using plus500 is listed on the instruments page (see Vodafone for example initial margin is listed as 5%)

For more information on this topic please read the following page from the plus500 website. Leverage and margin

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