I did a study on the brokers’ leverage for CFDs like stocks and indices to find the brokers with the highest leverage on CFDs and I found the highest leverage available for those instruments.
The reason I did that was I wanted to trade on CFDs but I don’t want to spend too much money on them because I’ve never traded them and I don’t want to jump out of my skin when seeing kind of unfamiliar situations.
After more than one decade of trading, I don’t feel like trading on a demo account and I prefer live accounts with rather smaller fund so I rolled up my sleeves and hit the searching button.
Unfortunately, there isn’t much to find while googling that and most sites show you a list of irrelevant brokers with high leverage on forex pairs at best — I’m looking for high leverage on CFDs idiot.
Now I have to find them by going through every broker’s website and dig into their pages and/or asking customer service.
I don’t know how many brokers searched exactly, probably more than 100, but it took me a whole day.
I saw the leverage for all the CFDs they offer but I looked for two specific ones, CFD Stock and Stock indices.
The highest leverage I found for CFD stocks is 1:20 and the highest leverage for stock indices is 1:500, and of course, that’s the maximum leverage you get for more liquid ones such as US stocks.
if you want to trade, let’s say, German stocks, you get something like 1:5 as leverage.
There are some reasons why leverage is rather low especially on stocks and we will talk about that to some extent later in this post but before that let’s talk about some basics in case some readers are new to this subject.
Leverage in Simple Words
Leverage simply means a loan given to traders which makes it possible for retail traders to buy and sell trading instruments.
Instruments like forex, shares, indices, and etc are traded based on their units in standard trading.
For example, the minimum amount available for you to buy/sell EUR/USD is 100000 units of base currency or €100000 (base currency is the one that comes first in currency pairs). This is like one standard lot with a 1:1 leverage ratio.
Ok, now how many retail traders can or willing to do such a trade, probably 0.00001 of current ones or something like that.
That’s where brokers come to help both to traders and themselves.
You probably don’t want to trade 1 share of SP500 index that requires more than $3000 as deposit margin in your account but you like to give it a try if it’s possible with $300 or even $30 and less. (we’ll talk about how much each lot is worth in the next sections)
By providing this opportunity for traders, brokers also have the chance to obtain way more clients and increase their revenues.
Why Leverage is A Doubled-Edged Sword
As a trader, you need to know something very important. Leverage is a double-edged sword which means it’s true that it can provide more trading opportunities for a larger number of people and speed up the process of gaining profits; it can expedite your losing process as well.
Imagine you want to open one standard lot in a broker that gives you a maximum leverage of 1:10 on USD/JPY.
Since one standard lot is 100000 units of base currency, which is USD here, you need at least $10000 in your account to be able to open one lot USD/JPY — 1:10 ratio leverage means you can open a position that is 10 times bigger than your capital.
So imagine your stop loss is 20 pips.
Assuming the current price of USD/JPY is 111.10 Every USD/JPY pip in one standard lot size is worth $9 in this situation.
Pip value formula = (one pip / current price) * lot size (units)
And in our example it is:
Pip value= (0.01/111.10) * 100000= $9
So for a 20 pip sl it’s worth $180. If I lose the trade, $180 is deducted from my account.
I’ve lost $180 from my $10k account which means 1.8%.
It’s the same for winning and if I see a 20 pip tp, I earn 1.8% of my account as a profit.
Now imagine I have the same 10k account in a broker with a 1:100 leverage.
For trading one standard lot or 100000 units (the maximum leverage I can use), I only need $1000 now because the broker allows me to trade with 100 times bigger than my money and it pays the rest.
So let’s take the same scenario as mentioned above where I lose $180. Now instead of losing 1.8% of my account, I lose 18% which is kind of a disaster — $180 is 18% of $1000.
Now we understand the concept of leverage let’s take a look at CFD and the leverage that CFD brokers offer.
What is CFD
Contract for difference or CFD is a derivative product that allows you to make profits out of the fluctuation of underlying assets such as shares, indices, commodities, and even currency pairs without owning them which means they trade over the counter OTC (like forex).
When you buy a share physically, you own something and besides being exposed to profit and loss as a result of price change, you‘re entitled to dividends as a shareholder as well.
You can also sell your shares only if you bought them first.
On the other hand, when you buy a CFD stock, you don’t own that and there is no distribution of profits and things like that.
You just make a profit by price movement however unlike the physical one, you can both buy and sell a stock. It means you can sell a share without buying that at all, just like forex.
As you can see it’s very similar to forex trading with a few differences.
For example, forex market is open 24 hours for 5 days but CFD markets are open depends on each asset.
For instance, UK100(index) in a broker is tradable from 7 to 21 every day while you can trade S&P 500 (index) from Sun 23.00 to Fri 21.15.
Another difference which is obvious is that in forex trading you can only trade currency pairs while there are more assets available in CFD such as stocks, indices, bonds, commodities, etc.
Leverage is a common feature for both; however, leverage is rather low in CFDS especially on stocks compared to forex pairs.
In most of the brokers, the leverage for CFDs is represented as margin requirements. For example, 1:100 leverage ratio is the same as 1% required or deposit margin (1/100).
If the leverage is 1:200 it means 0.5% margin required and for 1:20 leverage. It means the required margin is 5%.
Why Leverage Is Lower on CFDs Such As Stocks
One reason is that CFD stocks are low liquid and highly volatile so they are too risky, even for brokers. Look at the charts of shares. You can see many gaps especially in 15 minutes and lower and big fast movements creating a long candle.
Brokers don’t like volatility because it makes the market too unpredictable and risky. When they can’t match the price you order with their liquidity providers, they have to hedge your order. In other words, take the other side of your order.
Lending too much money as leverage in a volatile low liquid market is out of their risk management so they try to handle these kinds of assets by lower leverage.
Another reason is that a unit of a stock is equal to 1 share (1 lot) which is the price of that stock and since one share of a company isn’t worth too much we don’t need very high leverage to trade them.
Remember when we want to calculate the required margin for EUR/USD. In a 1:1 leverage, we have to have €100000 in our account to trade one standard lot.
For stocks, you need to have the amount of one share in your account as a deposit margin in order to trade that stock or share.
For example, one Apple share is worth $292.37 at this moment. Therefore, the required margin or the money that must be in our account is $292.37 with a 1:1 leverage.
If the leverage increases to 1:10, the required margin becomes $29.24 (or 29.237 to be exact).
The maximum leverage that I found for stocks after searching many CFD brokers is 1:20 while some of those brokers offer leverages as high as 1:1000 and in some cases even 1:3000 for currency pairs.
The leverage for stock indices is much higher. The common leverage for indices is 1:100, however, the brokers that I picked, give you 1:200 and in one case 1:500.
List of Brokers with the Highest Leverage on CFDs
These are the CFD brokers that have the highest leverage on CFDs, particularly on stocks and indices.
|Broker||Stock Leverage||Index Leverage||Min Deposit||Website
Note: in some of the brokers, the minimum deposit is as low as $1 or $5. It doesn’t mean you can trade all stocks with that amount. For example, as we mentioned above, for trading apple, you need to have something around $30 in your account as a required margin.
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According to our examination on more than 100 brokers, the highest available leverage for CFD stocks is 1:20 while it’s 1:500 for stock indices and some brokers offer up to 1:3000 for forex pairs.