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3: Short trade with net profit

In this example an investor believes the share price of Barclays will fall. The investor wishes to go short (sell) 10,000 worth of Barclays shares priced at 2 each.

With a CFD, shorting a share is the ‘mirror image’ of buying it. As most traditional stockbrokers do not allow private investors to go short, an investor is unable to use shares to capitalise on a falling price.

Opening trade Shares Selling a CFD
Total value of shares n/a 10,000
Initial outlay n/a 1,000
Commission (0.5%) n/a 50
Stamp Duty n/a 0

After 10 days, the share price falls to 1.90 and you sell at a profit. With a CFD, your deposit is returned to you, together with your profit.

Closing trade Shares Buying a CFD
Closing value n/a 9,500
Commission (0.5%) n/a 48.00
Financing charges n/a 6.90
Net Profit n/a 395.10

Like normal share dealing, with CFDs you deal at the cash price of the share and pay a commission on both the open and the close, which is calculated as a percentage of the value of the transaction.

The above examples use our standard commission rate of 0.5%. Galvan’s commission rates range from 0.2% to 0.5% depending on account size.

The daily financing on a short CFD is based on LIBOR - 3%. Based on current LIBOR rates, on a 10,000 short position, this works out at around 0.69 per day.

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Trading in Contracts for Difference may not be suitable for all investors due to the high risk nature of the product. You may lose all or more of your initial deposit through the use of leverage and may be required to make additional payments by way of margin on a frequent and sometimes daily basis. Failure to do so can result in the closure of part or all of your position. Please refer to Galvan’s risk warning.