Leverage & Risk
A Contract-for-Difference (CFD) is a financial derivative product that allows an investor to obtain economic exposure (for speculative, investment or hedging purposes) to an underlying asset, such as a currency, an index or commodity, without acquiring ownership of the underlying asset.
Trading in over-the-counter (OTC) derivatives, including leveraged Foreign Exchange Contracts (FX) and Contracts-for-Difference (CFDs), is highly speculative and not appropriate for risk-averse investors or those seeking security of capital. An account opened with Questrade Inc. allows you to trade currencies on a highly leveraged basis. A small adverse price change to the underlying asset can magnify the impact on the funds in your account, potentially resulting in the total loss of your initial investment and any additional funds that you may deposit to meet margin calls.
Given the risk of losing your entire investment, speculating in the over-the-counter (OTC) derivatives market should only be conducted with risk capital that if lost will not have a substantial impact on your financial well-being. Before making a decision to trade FX & CFDs, you should carefully consider all of the disclosures in the account application and, in particular, you should evaluate the risk factors listed in the Risk Information Document for Derivatives provided to you upon account opening.
Should you decide to proceed with your investment, you acknowledge that you will be trading only with risk capital or funds that you can afford to lose, and that the loss of such funds will neither jeopardize your present life-style nor future retirement. FX & CFD trading may not be suitable for all customers, therefore ensure you fully understand the risks involved and seek independent financial advice if necessary.
What are the costs associated with stock CFDs?
On top of a commission, you may incur the following fees:
Financing fees: If a stock CFD is held overnight, there will be a financing costs, which depends on the specific stock CFD. Unlike traditional stock trading, financing charges for stock CFDs are charged independent of the margin rate of the stock CFD and are based on the entire book value of your position.
If you buy $10,000 worth of a stock CFD and you have a 4% financing rate:
Daily finance charge
10,000 x 0.04 = $400 yearly
$400/365 = $1.096/daily charge for holding the CFD
Financing charge calculations vary depending on the individual stock CFD. To find out a specific financing charge log in to Questrade FX Global or call us at 1.866.980.9591.
Borrowing fees: In rare occasions where the supply of a CFD is limited, there may be a borrowing fee incurred on the specific stock CFD. The fee would depend on the CFD and is displayed on the platform.
For more information, see pricing
What does it mean to trade on margin or leverage?
Trading on margin means you’re borrowing money from a broker to purchase a security (like a stock CFD). This is like a loan, which allows you to purchase more of a position than you’d be able to normally. In a Questrade margin account, you trade with margin when you don’t have the cash available to buy the position. In an FX and CFD account, you will be using margin even if you have the cash available to buy the entire position.
Continuing the example above, if you bought $10,000 worth of a stock CFD with a 30% margin rate, and you have $5,000 of cash available in your account:
$10,000 x 0.30 = $3,000 of margin used
Margin still available
$5,000 - $3,000 = $2,000 of margin still available