The best way to understand how CFDs work is to follow some examples.
Assume you want to buy 1000 Vodafone CFDs and the exchange price stands at 214.9-215.0p. Your CFD position will be opened at the upper price of 215.0p. The full contract value of this position is 1000 x 215.0p or £2150, but to open the contract you need only put down a margin deposit.
Your margin requirement will be 5% of the full contract value, which is £107.50, although you can reduce this margin by attaching a stop-loss to your position. Your commission to open this position will be 0.1% of your total position value. This comes to 0.1% x £2150 = £2.15, paid on opening.
While your position is open we will adjust your account for overnight financing and any dividends should Vodafone go ex-dividend. (For more information on these adjustments see CFD Trading Costs.)
Suppose a fortnight later Vodafone shares have risen steadily and the market price now stands at 233.3-233.4p. You can now close your CFD position by selling at the bid price of 233.3p. Your commission to close this position will be 0.1% x £2333 = £2.33.
|No. of CFDs||1000|
To calculate your net profit you should add or subtract any overnight financing and dividend adjustments.
Suppose you want to go short of Wall Street. Our quote for the cash index has a minimum dealing spread of 1.6 points and might be 22263.0-22264.6. This means that you can sell at 19763.0, the lower end of our quote. One CFD contract on Wall Street is worth $1 per index point. You want to risk $3 per point so you sell three CFD contracts at 22263.0.
Your margin requirement to open this position will be 0.5% of your position value. This comes to $3 x 22263 x 0.5% =$333.95 (converted into your account currency). You can reduce this margin by attaching a stop-loss to your position. For example, if you attach a stop 10 points from your opening price, your margin requirement will be ($333.95 x 50%) + ($3 x 10) = $196.97. There is no commission to pay as all the charge is included in the dealing spread.
|Risk per point||$3|
Assume our Wall Street price falls to 22137.4-22139.0 and you decide to close your CFD position by buying at the ask price. Again, there is no commission to pay. To calculate your net profit you should also add or subtract your accumulated overnight financing and any dividend adjustments. For examples of how overnight financing is calculated please see the FAQs.
For more detail on margin calculations, and further examples, visit our FAQs. You can discover more about CFD trading in several ways: