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Getting to grips with gearing

The main difference between CFDs and ordinary stock market investments is gearing, which is sometimes called leverage – an arrangement in which a sum of money can work harder for you but involves greater risk.

To understand gearing, consider the difference between driving a car in 1st gear and top gear. The person driving in 1st gear may cover 10-15 miles in an hour, whereas driving in top gear the person could cover 70 miles or more in an hour. The higher the gear and faster you go, the further the distance covered.

Arguably there’s less risk in driving in a lower gear, but there’s far less distance travelled. Now, driving fast does have disadvantages and higher risks, but this is where you can put the brakes on and protect your portfolio.

So, when it comes to CFD trading, you can buy (or sell)

To find out more

a derivative of a share, a share index, a commodity, a bond or foreign currency for a fraction of its price. If the value of the underlying asset goes the way you want, your investment moves up very rapidly in percentage terms. Get it wrong and you can face a significant loss.

We developed a Fixed Risk CFD and FX account which has built-in protection to strictly limit risk for you. If you use guaranteed stops for each trade the maximum you can lose is the original amount invested in each trade, otherwise your maximum exposure is limited to the amount held in your CFD account.

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