CFD Trading Examples
Long Marks and SpencerYou wish to buy 3,000 CFDs in Marks and Spencer:
| Bid/Offer: | 353/353.75p |
| Trade: | Buy 3,000 CFDs at 353.75p |
| Margin Requirement: | 3,000 x £3.5375 x 10% = £1061.25 |
| Stamp Duty: | None |
| Commission: | £21.23 (0.20% of nominal) |
The financing of this position works as follows:
| Interest Rate: | 6.5% (2.5% above London Interbank Bid Rate (LIBID in this example = 4%)) |
| Closing Share Price: | 354p |
| Daily Interest owed: | 3,000 x £3.54 x 6.5% / 365 = £1.89 |
In the event of a benefit resulting from a Corporate Action, your account will be credited. In this example, Marks and Spencer pay out a dividend:
| Dividend: | Net 6p |
| Total Credit: | £0.06 x 3000 = £180 |
10 days after opening the position, you decide to sell your CFD when the price of Marks and Spencer reaches 370p. During this period your interest payments totaled £19.20. Your position is closed as follows:
| Bid/Offer: | 370/370.75p |
| Trade: | Sell 3,000 CFDs at 370p |
| Commission: | £22.20 (0.20% of nominal) |
The net result is as follows:
| Opening level: | 353.75p |
| Closing level: | 370p |
| Difference: | 16.25p |
| Profit on trade: | £487.50 (£0.1625 x 3,000) |
| Total commission: | £(43.43) |
| Dividend: | £180 |
| Interest payments: | (£19.20) |
| Net Profit: | £604.87 |
Short Marks and Spencer
Alternatively, having concluded that Marks and Spencer is actually going to fall in value, or perhaps that you would like to hedge Marks and Spencer shares that you own to protect against such an eventuality, you decide to sell the CFD.
| Bid/Offer: | 353/353.75p |
| Trade: | Sell 3,000 CFDs at 353p |
| Margin Requirement: | 3,000 x £3.53 x 10% = £1059 |
| Commission: | £21.18 (0.20% of nominal) |
Because you are short, your position is credited with interest, rather than debited. The financing works as follows:
| Interest Rate: | 1.5% (2.5% below London Interbank Bid Rate (LIBID in this example = 4%)) |
| Closing Share Price: | 354p |
| Daily Interest credited: | 3,000 x £3.54 x 1.5% / 365 = £0.44 |
In the event of a benefit resulting from a Corporate Action, your account will be debited. In this example, Marks and Spencer pay out a dividend:
| Dividend: | Net 6p Total |
| Debit: | £0.06 x 3000 = £180 |
10 days after opening the position, shares in Marks and Spencer have fallen to 340p and you decide to close your CFD position by buying the equivalent number of shares you sold. During this period, £4.10 of interest was credited to your account. Your position is closed as follows:
| Bid/Offer: | 339.25/340p |
| Trade: | Buy 3,000 CFDs at 340p |
| Stamp Duty: | None |
| Commission: | £20.40 (0.20% of nominal) |
The net result is as follows:
| Opening level: | 353p |
| Closing level: | 340p |
| Difference: | 13p |
| Profit on trade: | £390 (£0.13 x 3,000) |
| Total commission: | £(41.58) |
| Dividend: | (£180) |
| Interest payments: | £4.10 |
| Net Profit: | £172.52 |
N.B. It goes without saying that had the CFD price moved in the opposite direction in either of these examples, the trading profits illustrated above would have become losses.
| Opening level: | 353p Short |
| Closing level: | 358p Bought Back |
| Difference: | -5p |
| Profit on trade: | (£150) (£0.13 x 3,000) |
| Total commission: | £(42.66) |
| Dividend: | (£180) |
| Interest payments: | £4.10 |
| Net Profit: | £(368.56) |
