  WHAT ARE CFDs? |
 A contract for difference (or CFD) is a contract between two parties, buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller.) For example, when applied to equities, such a contract is an equity derivative that allows investors to speculate on share price movements, without the need for ownership of the underlying shares.
CFDs provide investors with the opportunity to take long or short positions. Unlike futures contracts, CFDs have no fixed expiry date or contract size. Trades are conducted on a leveraged basis with margins typically ranging from 1% to 20% of the notional value for CFDs on leading equities.
 CFD’s Trading Example
 Opening position
IBM is trading at (bid/offer) $115.60/$115.65. You want to buy 100 Shares worth of IBM CFDs at the offer price of $115.65 with the view that the share price of IBM will go up.
| Buy Price per share |
$115.65 |
Total Cost of 100 shares |
$11,565 |
| Margin required (10%) |
$11.56 |
Total Required Margin |
$1,156.5 |
| Transaction Commissions (to buy) |
$.10 per share |
Total Transaction Commissions |
$10 |
The total required margin for this transaction is $1,156.5, compared to $11,565, the amount one would pay to a traditional broker.
Closing position
The price of IBM rises to $117.75. Having held the position overnight, you decide to close your position by entering an equal but opposite trade, by selling 100 shares of IBM CFDs at $115.75.
| Sell Price |
$117.75 |
Total Cost of 100 Shares |
$11,775 |
| Gross profit/loss |
$210 |
Gross profit/loss % of the required margin |
18% |
Total Commission charges
(to buy and sell) |
$10
|
Over night financing: 1 day, LIBOR 1 year
5.25% |
$1.66
|
Gross profit/loss
|
$210
|
Minus $10 commissions, minus $1.66 overnight interest |
Net $198.34
|
By closing your position you realize a gross profit of $210. The net profit received from this trade after commissions and the interest charge is $198.34.
If you have any questions about CFDs please contact us at:
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Risk Warning: CFDs are margined products; it is possible to lose more than your initial margin deposit or credit allocation as well as any variation margin that you may be required to deposit from time to time. Therefore you should only speculate with money that you can afford to lose.