Most CFDs are leveraged. Leverage means you get a larger market exposure with a relatively small initial deposit. In other words, your potential return on investment is significantly larger than in other forms of trading.

Let’s take stock investing as an example. Say that you’d like to purchase 10,000 shares of Company A and its share price is 280 cents, which means that the total investment would cost you $28,000, not including any commission or other fees you might have to pay your broker for the transaction. In return, you receive a stock certificate, and legal documentation that certifies ownership of shares. You have something physical to hold in your hands until you decide to cash in on them, hopefully for a profit.

With CFDs, however, you don’t own those shares. You’re simply speculating on the movements in the share price.

And with leverage, you only need a small percentage of the total trade value to open the position and maintain the same level of exposure. At 4T we offer leverage of 10:1 (10%) on shares, which means that you would only need to deposit an initial $2,800 instead of the full $28,000.

If shares in Company A rise 10% to 308 cents, the value of the position is now $30,800. So with an initial deposit of $2,800, this trade has made a profit of $2,800. That’s a 100% return on investment, compared to just a 10% return on investment if shares were bought physically.

However if Company A shares fall 10% to 252 cents, the value of the position is now $25,200. With your initial deposit of $2,800, your trade has made a loss of $2,800. That’s a 100% loss on your investment compared to a 10% loss if the shares were bought physically.

Most CFDs are leveraged. Leverage means you get a larger market exposure with a relatively small initial deposit. In other words, your potential return on investment is significantly larger than in other forms of trading.

Let’s take stock investing as an example. Say that you’d like to purchase 10,000 shares of Company A and its share price is 280 cents, which means that the total investment would cost you $28,000, not including any commission or other fees you might have to pay your broker for the transaction. In return, you receive a stock certificate, and legal documentation that certifies ownership of shares. You have something physical to hold in your hands until you decide to cash in on them, hopefully for a profit.

With CFDs, however, you don’t own those shares. You’re simply speculating on the movements in the share price.

And with leverage, you only need a small percentage of the total trade value to open the position and maintain the same level of exposure. At 4T we offer leverage of 10:1 (10%) on shares, which means that you would only need to deposit an initial $2,800 instead of the full $28,000.

If shares in Company A rise 10% to 308 cents, the value of the position is now $30,800. So with an initial deposit of $2,800, this trade has made a profit of $2,800. That’s a 100% return on investment, compared to just a 10% return on investment if shares were bought physically.

However if Company A shares fall 10% to 252 cents, the value of the position is now $25,200. With your initial deposit of $2,800, your trade has made a loss of $2,800. That’s a 100% loss on your investment compared to a 10% loss if the shares were bought physically.