Example Trade

The best way to demonstrate how a CFD works is to look at some key examples:

Share CFD Example: Long Trade

A long trade is a position that is opened with a buy in the expectation that the share price will rise.

Vodafone is currently trading 118.4 – 118.5

Investor A believes that Vodafone is going to rise and places a trade to buy 10,000 shares as a CFD at 118.5. The total value of the contract would be £11850 but they would only need to make an initial 10% deposit (initial margin) £1,185. The commission on the trade is £17.78 (£11,850 x 0.15%) and because they are buying a CFD there is no stamp duty to pay.

A week later Investor A's prediction was correct and Vodafone rise to 124.9 – 125.0 and they decide to close their position. By selling 10,000 Vodafone CFDs at 124.9p. The commission on the trade is £18.74 (£12,490 * 0.15%).

The profit on the trade is calculated as follows:

Overall Profit

To calculate the overall profit you must take into account the commission and financing charges on the deal, remember with a "Short" sell the financing charge is credited to the holder.

Share CFD Example: Short Trade

A short trade is a position that is opened with a sell transaction in the expectation that the share price will fall.

Barclays is currently trading at 322 – 322.5

Investor B believes that Barclays is over-valued and is going to fall and places a trade to SELL 5,000 shares as a CFD at 322p. The total value of the contract would be £16,100. Even though they are selling short, they would only need to make an initial 10% deposit (initial margin) £1,610. The commission on the trade would be £24.15 (£16,100 x 0.15%)

A week later Investor B's prediction was correct and Barclays falls to 301 – 301.5 and they decide to close their position. By Buying 5000 Barclays CFDs at 301.5p, the commission would be £22.62.

The profit on the trade is calculated as follows:

Overall Profit

To calculate the overall profit you must take into account the commission and financing charges on the deal, remember with a "Short" sell the financing charge is credited to the holder.

CFD trading carries a higher level of risks than the risks associated with transactions in traditional shares