IQ Option – How CFDs Work – Leverage Explained

IQ Option – How CFDs Work – Leverage Explained

87% of retail CFD accounts lose money with this provider. Your capital may be at risk.

IQ Option allows you to invest in several financial assets, including stocks, forex, ETFs, and commodities.

A CFD, contract for difference, is a convenient financial instrument that enables you to trade at leverage and to both buy and short an asset.

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In this guide, we cover everything you need to know about CFDs when trading on IQ Option.

Table of contents

IQ Option CFD trading explained

A CFD, short for a contract for difference, is a financial asset that derives its value from its underlying asset.

The underlying asset of a CFD can be anything from stocks to commodities.

If you buy an Apple CFD, the value of that CFD changes identically to Apple stock.

For example, if you buy an Apple CFD and Apple stock rises 10%, your Apple CFD will rise 10% in value as well.

Likewise, if Apple stock falls 10%, your Apple CFD will fall 10% in value.

Advantages of CFDs

Trading CFDs comes with its advantages compared to trading the underlying asset itself directly.

Firstly, you can trade assets that are hard to trade through other means, like oil and gold. With CFDs, trading these is just as easy as trading stocks.

Secondly, CFDs can be traded at leverage, allowing you only to put up a fraction of your position’s value.

For example, if you trade at a five times leverage, an investment of $20 will have a trading value of $100.

This means that if you invest $20 at a five times leverage, and the underlying asset, a stock, for example, rises by 10%, your $20 rises by 50%, making your position worth $30.

Likewise, if the underlying asset falls 10%, your position falls 50% in value, causing your position to be worth $10.

Lastly, when you trade CFDs on IQ Option, there is no minimum amount to invest.

Even if you purchase a CFD of a stock that’s worth several hundred dollars, like Adobe Systems, you can still invest as little as $1 into the asset.

Buy and short assets

Typically, when you buy an asset like a stock, you profit from the price of that asset rising from the level you bought it at.

With CFDs, however, you can also profit from assets falling in price by shorting the asset, known as selling on IQ Option.

If you short a stock and it then falls 5% in value, your position will rise 5% in value. With leverage, the 5% increase will be multiplied.

Likewise, a rise in the price of the underlying asset you’re shorting results in a fall in your position’s value.

Being able to short an asset is a major advantage if you believe an asset is due to fall in value in the near future.

Without shorting, you can’t profit from an asset falling in price as effectively.

You can easily choose whether you want to buy or short an asset on IQ Option.

When you’re on the main trading window of IQ Option, you’ll find both a Buy and a Sell button on the right side.

If you want to buy an asset because you believe the price of the selected asset will rise, press Buy.

If you want to short an asset because you believe the price of the selected asset will fall, press Sell.

Disclaimer: Investerfy.com is not a financial advisor. All content on this site is for educational purposes only. Make sure you understand the risk associated with investing and trading.

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