CFD deal types and trading costs are important to understand before placing your first trade. This lesson covers the types of orders you can use, such as market and limit orders, as well as the potential fees involved. Knowing these details can help you make smarter trading decisions and manage your costs effectively.
There are two primary CFD deal types: market orders and limit orders. A market order executes your trade immediately at the current available price. A limit order, on the other hand, allows you to set a price at which the trade will only execute if the market reaches it. Market orders prioritise speed, while limit orders prioritise price control.
The spread is one of the core trading costs. It’s the difference between the buy and sell price. For example, if a share has a buy price of £50.50 and a sell price of £50.00, the 50-pence spread represents the cost of entering and exiting the position. Tighter spreads mean lower costs.
For trades held overnight, most CFD providers apply an overnight financing fee. This is essentially interest charged on the borrowed capital used in leveraged positions. The exact rate varies by instrument and provider and is typically based on an interbank rate plus a small markup.
Some trades, especially share CFDs, may include a commission fee. This could be a flat fee or a percentage of your position size. It’s important to factor this in when calculating your break-even point and potential returns.
Additional features like guaranteed stop-loss orders or trailing stops offer risk control but may come with added charges. These tools can be useful in volatile markets or when managing exposure overnight.
Understanding CFD deal types and trading costs is essential for efficient capital management. By being aware of the fees involved and the mechanics of order execution, you’ll be better prepared to take control of your trading outcomes.