CFDs - Understanding the risks
CFDs are a way to trade on share and market price movements without actually owning the share itself. You own a contract which you buy at one price and sell at another making or paying out the difference.
- You can lose more money than you invest you may need to make further deposits at short notice if your positions move against you
- CFDs are not suitable for everyone so make sure you understand the risks
You should ensure you fully understand the risks of CFDs by reading our Risk Warning Notice. Please seek independent advice if necessary.
Maximum loss on a short CFD
For a short CFD, there is no limit to the amount of money you could lose. In our fully worked out example if the price continued to rise, you would lose £1,000 for every 100 pence the CFD price went up. These losses would continue until you closed the position.
So the key to CFD trading is to know how much you're prepared to lose and how to use all the features of the product to help protect you against losses you cannot afford. See stop losses and limits.
A CFD is an open-ended contract with no specified closing date. If your CFD is not performing as you'd hoped you can keep it open if you think the position will recover, so long as you can afford to keep financing the contract.
Maximum loss on a Long CFD
The maximum loss on a long CFD is the notional value of CFDs you've bought. In our fully worked out example you could lose up to £45,000, even though you only have to provide £2,250 as your margin requirement. However, the FTSE100 would have to fall to zero before you lost the full amount. For an equity, liquidation could take the notional value of your position to zero.
