Things to know about trading CFD’s
o trade CFD’s you simply have to fund your account with the required initial margin for that product in the amount you wish to trade. For a stock like Vodafone for example, if the margin requirement is 5% then you only have to deposit that percentage of the value of the trade you wish to do. So to buy £50,000 worth of Vodafone shares you would only need to initially fund your account with £2,500 (which is 5% of £50,000). You are trading on the price movement of the market concerned, and when you close the trade the difference between the opening price and the closing price will determine how much money you make or lose. You do not have any entitlement to voting rights, are subject to corporate actions, and are liable to pay the dividend if you are short, but you do benefit from any dividends that are awarded if you are long. CFD’s are not regulated on any exchange because they are a derivative product. This simply means that we derive our CFD prices from the underlying market price which will usually mimic that price in every way. We do not charge any commission to trade CFD’s. The price you see is the price you get.
The other benefits from trading CFD’s, besides being able to trade on margin, is that you are generally not liable to pay stamp duty on shares, as you have not actually bought any. Also you can offset any losses made against your Capital Gains Tax liability in the UK (tax laws can change). If this benefit is significant to you then we recommend that you seek independent financial advice for a more in depth explanation.
All rolling CFD markets are subject to overnight financing. If you are long CFD’s (i.e. you have a position on which you will profit if the market concerned goes up) then as you have only put up a fraction of the actual value of the trade then you have ‘effectively borrowed’ the balance. For this we charge a financing charge of 2% above the overnight borrowing rate for the currency concerned.
If you had gone short on CFD’s (i.e. you have a position on which you will profit if the market concerned goes down) then you have effectively deposited the entire value of the trade with us and will receive financing which is the overnight lending rate minus 2% (subject to a minimum of 0%). This is much better than most of our competitors as some do not have a minimum of 0%. This would be like a bank charging you interest on having savings.
As mentioned previously any profit or loss made on a CFD trade is calculated from the difference between the opening and closing prices of the trade. So if you bought £50,000 worth of Vodafone at £1.40 and sold them at £1.60 then you would make 20 pence profit which is £7,143 (£50,000 / 1.40 x 20p). If the price had fallen to £1.20 then you would have lost this amount. To calculate the number of CFD’s you want to trade you simply divide the price of the CFD into the amount of CFD’s you wish to trade in. So in this example that would be £50,000 / £1.40 = 35,714.
All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary