CFD Trading Example
Below is an example comparing the use of shares to CFDs.
Imagine the physical purchase of 1,000 British Airways shares at 200p each. By investing the same amount of capital, you could buy (go ‘long’) a CFD representing 10,000 shares at 200p each.
| Action | Buying shares | Buying a CFD |
|---|---|---|
| Opening Value | £2,000 | £20,000 |
| Commission (0.5%) | £10 | £100 |
| Stamp Duty (0.5% on shares) |
£10 | £0 |
| Deposit Required (10% for CFD) |
£2,000 | £2,000 |
After 10 days, you sell at a profit. Your sale price is 215p per share. Your deposit is returned to you, together with your profit.
| Action (Winning Trade) | Selling shares | Selling a CFD |
|---|---|---|
| Closing Value | £2,150 | £21,500 |
| Commission (0.5%) | £10.75 | £107.50 |
| Interest Charges (including financing @ libor + 2.5% = 4% pa on CFD) |
Nil | £21.90 |
| Net Profit | £119.25 | £1,270.60 |
Alternatively after 10 days, you sell at a loss. Your sale price is 190p per share. Your deposit is returned to you, minus the loss.
| Action (Losing Trade) | Selling shares | Selling a CFD |
|---|---|---|
| Closing Value | £1,900 | £19,000 |
| Commission (0.5%) | £9.50 | £90 |
| Interest Charges (including financing @ libor + 2.5% = 4% pa on CFD) |
Nil | £21.90 |
| Net Loss | £129.50 | £1,216.90 |
The example above assumes a standard commission rate of 0.5%. Galvan's commission rates range from 0.2% to 0.5% depending on account size.
The financing charge is based on a £20,000 position X 4% (LIBOR+2.5%) divided by 365 days. This works out at £2.19 per day multiplied by the 10 days the position was held.
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