Forex is one of the most popular markets among IG clients, and we offer several flexible ways of speculating on currency markets. Find out more about contracts for difference (CFDs) and digital 100 trading with forex.
A forex CFD is a contract that allows you to exchange the difference in price of a currency pair between the time you open your position and the time you close it. Open a long position, and if the forex position increases in price you’ll make a profit. If it drops in price, you’ll make a loss. Open a short position, and the opposite is true.
You can trade using leverage and won’t have to pay commission to open a position. CFDs are liable for capital gains tax, but you can offset your losses against profits for tax purposes, making them a good product for hedging.1
Find out more about CFD trading with IG
Experienced CFD traders can interact directly with market makers’ order books using Forex Direct, our DMA service. So you can buy and sell forex without the spread – instead trading at the prices offered by currency providers, plus a variable commission.
Forex Direct provides full transparency over the prices available in the market, allowing you to see extensive data on currency pair prices. You can use it to be more flexible about the price you trade at, or to act as market maker.
CFD trade on forex example
1. You open a short position on EUR/CHF, when the pair is trading at 1.0815.
2. You choose the size of your position. Each CFD contract is equal to a single lot in the base currency, so trading a single CFD is equivalent to selling €100,000, or an equivalent of 10 CHF per point of movement.
3. EUR/CHF drops to 1.0790, and you buy a single CFD to close your position.
4. The profit on your short trade is 2300 CHF. If you’d chosen to go long instead, you would have lost 2700 CHF. Profit or loss is realised in the base currency of your account.
Opening a forex CFD
To open a forex CFD with IG, you can first of all choose whether you’d like to trade at our price, or whether you’d like to use Forex Direct. Forex Direct is recommended for advanced traders, with trades charged via commission instead of the spread.
To trade forex at our price, choose which pair you’d like to trade and then open a deal ticket by hitting its name on our platform. You can choose the number of contracts you’d like to trade, which are usually equal to a single lot in the given base currency.
A forex digital 100 asks you a question about a currency pair with two possible outcomes. If you predict the correct outcome, your position will return a profit. If you choose the wrong outcome, you’ll lose your original stake. The digital 100s price reflects the time left until expiry, and how likely it is that the statement will come true. If it does come true, the digital 100 price will settle at 100. If it doesn’t, it will settle at zero.
Like CFDs, digital 100s allow you to take long and short views on a host of currency pairs. Unlike some other forms of derivative, though, you’ll always know your total potential profit or loss before you open a digital 100 position. That’s because digital 100s only have two possible outcomes: you position settles at 100, or settles at zero and you lose your stake.
More about digital 100s with IG
Opening a forex digital 100
For example, a forex digital 100 might ask you whether EUR/GBP will be above 0.8215 at midday. It has three hours left until it expires, and EUR/GBP is trading at 0.8206. You believe that there is a strong likelihood that it will end up above 0.8215, so you buy the digital 100 at its current price of 45.
You set your stake at the equivalent of £10 per point, making your total position worth £450. If EUR/GBP is above 0.8215 at midday then the digital 100 will settle at 100. Your position will now be worth £1000 and you will have made a £550 profit. If EUR/GBP is beneath 0.8215 at midday then the digital 100 will settle at 0, and you’ll lose your £450 stake.
The digital 100 price will change as its expiry date nears, reflecting the likelihood that the proposed outcome will arise. You don’t have wait for a digital 100 to expire before closing your position: you could exit the trade when the binary is trading at 20, for instance, cutting your losses to £250 (as long as it then settles at zero).
Digital 100s trade on forex example
1. You open a binary position on USD/JPY to be above 10100, expiring at the end of the trading day. Our binary price for the trade is 75, and you think the statement will come true so you buy the binary.
2. You choose your stake in contracts for CFD accounts.
3. At the end of the trading day, USD/JPY is trading at 10115, and our digital 100 settles at 100.
4. Your profit on the CFD trade would be ¥23,000 (around £170)
5. If USD/JPY had been below 10100, the digital 100 would have settled at 0 and you would have lost your original stake. Alternatively, you could have closed the trade at any time before expiry.