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CFD Share Trading |
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A look at CFD share trading, with a comparison of some of the leading CFD brokers and CFD share trading examples.
CFD Shares Comparison
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| FTSE 100 Shares Commission |
£0 |
0.08% |
0.08% |
£12 |
£7 |
0.08% |
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CFD Comparison Notes
How to Trade Shares CFDs
You might think that the Vodafone shares will go up and therefore want to speculate on that happening.
In this case you place a CFD on the Vodafone shares to increase.
You can trade at the market rate and simply pay an initial deposit to open your CFD, as well as a small commission.
CFD Share Trading Example – Short Example
Opening the CFD
It is 9am on 10 April and you decide to open your Vodaphone CFD. The shares are quoted at 126.85p – 126.95p and you buy 10,000 shares (as a CFD) at 126.95p.
So instead of putting up the full value of the shares, 126.95p x 10,000 = £12,695, you just put up a deposit of 5% of the value or £634.75†.
Closing the CFD
It is nearing the market close and the shares have risen to 129.25p – 129.35p. Therefore you decide to take your profit and you sell the CFD of 10,000 shares at 129.25p.
Your P&L is calculated as:
| CFD Opening Level: | | 126.95p | |
| CFD Closing Level: | | 129.25p | |
| Price Difference: | | 2.30p | |
| Profit on Trade: | | 2.30p x 10,000 = £230 | |
To calculate the overall result on the transaction you would also have to take into account the commission you have paid plus the interest and dividend adjustments (see the ‘long example’ below for more details).
Note that if the shares had dropped you would have made a loss that could have exceeded your initial deposit.
CFD Share Trading Example – Long Example
Again, it is 9am on 10 April and you decide to place Vodafone CFD. Again, the shares are quoted at 126.85p – 126.95p and you buy 10,000 shares (as a CFD) at 126.95p.
The commission on the trade is 0.10% or 10,000 shares x 126.95p x 0.10% = £12.69. There is no stamp duty on this trade.*
The share price increases throughout the day but you feel that the shares will continue to rise and decide to hold your trade overnight.
Overnight Interest Adjustments
Interest adjustments are calculated daily where the applicable interest rate is applied to the daily closing value of your trade.
The annual interest adjustment for a Sterling denominated share like Vodafone is found by adding the latest one-month LIBOR rate to the financing fee.
On 10 April, LIBOR was at 1.0112%, so the annual interest rate applied to your CFD, with a financing fee of 2.5%, would be 3.5112%:
| LIBOR: | | 1.01% | |
| Fee: | | 2.50% | |
| Total: | | 3.51% | |
The closing bid price on 10 April was 127.35p. ie the closing value of your CFD is £12,735.
The annual interest on £12,735 is £447.15 and therefore the daily interest rate on your position = (£12,735 x 3.5112%) / 365 = debit of £1.22.
Dividend Adjustments
When you hold a long position and a share goes Ex-Dividend, the dividend value is credited to your account (for this example there is no dividend).
Closing the CFD
Despite your analysis suggesting that the Vodafone market will rise it falls instead and by 4pm on 11 April the market is priced at 124.55p – 124.65p.
You opt to close your trade and reduce your losses before the market falls further. Therefore you sell 10,000 shares at 124.55p. The commission on this transaction is 0.10% or 10,000 shares x 124.55p x 0.10% = £12.45
Your loss on the CFD is calculated as follows:
| CFD Opening Level: | | 126.95p | |
| CFD Closing Level: | | 124.55p | |
| Price Difference: | | -2.40p | |
| Loss on Trade: | | -2.40p x 10,000: -£240 | |
Overall Result
To calculate the overall loss on your trade you should to take account of the commissions paid, the interest and the dividend adjustments:
| Loss on trade: | | -£240 | |
| ‘Buy’ commission: | | -£12.69 | |
| Interest adjustment: | | -£1.22 | |
| Dividend adjustment: | | n/a | |
| ‘Sell’ commission: | | -£12.45 | |
| Overall loss: | | -£266.36 | |
Trading CFDs may not be suitable for everyone. Please ensure that you fully understand the risks involved. CFDs are a leveraged product and losses can exceed your initial deposit. If necessary, seek independent financial advice.
† Example courtesy of IG Markets. This example is based on the Vodafone margin rate available to IG Markets Account holders.
For regular CFD trading news also see: CFDs Blog.
Where to Trade CFDs
You can trade CFDs online with:
Contracts for Difference (CFDs), margined forex and financial spread trading are leveraged products and may not be suitable for everyone. Losses can exceed your initial deposit. Please ensure that you fully understand the risks involved and seek independent financial advice where necessary.
CFD Share Trading, last edited by W.Winter, 22-Dec-11.
For related articles please see:
Index CFDs - last update: 22-December-2011
Index CFDs Trading - How to trade Stock Markets through CFDs. Plus which CFD companies offer Index CFDs with - read more - Index CFDs.
Forex CFDs - last update: 26-April-2012
Forex CFDs – a guide to forex CFDs including a broker commission comparison, a forex price guide, forex trading tips and - read more - Forex CFDs.
CFD Share Trading - last update: 22-December-2011
CFD Share Trading - How to trade shares through CFDs. Plus which CFD companies offer CFD Share Trading with - read more - CFD Share Trading.
Commodities CFDs - last update: 26-April-2012
Commodities CFDs – a guide to Commodities CFDs including a broker commission comparison, a commodities price guide, a look at supply and demand as well as - read more - Commodities CFDs.
US Shares CFDs - last update: 26-April-2012
US Shares CFDs – a guide to CFDs on US shares including leverage, tax, the brokers that offer US shares CFDs and - read more - US Shares CFDs.
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Warning: Contracts for Difference (CFDs), margined forex and financial spread trading are leveraged products and may not be suitable for everyone. Losses can exceed your initial deposit. Please ensure that you fully understand the risks involved and seek independent financial advice where necessary.
The contents of this website are for information purposes only and not intended as a recommendation to trade nor does the content constitute investment advice. All reasonable efforts have been made to present accurate information. Neither CFDs-Online.com nor any contributing company or individual accepts any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.
* Tax law is subject to change. It can also differ if you pay tax in a jurisdiction other than the UK.
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