How CFDs work

CFDs offer significant advantages over traditional methods of investing

Galvan is finding that CFDs are becoming increasingly popular as they offer significant advantages over traditional methods of investing. With these innovative contracts you can reap all the economic benefits of share dealing, without actually physically owning the shares.

Each Contract for Difference corresponds to an individual company share – such as BHP Billiton, Vodafone or Barclays. It is quoted in exactly the same way, and its movement mirrors the ups and downs of the corresponding share.

As with shares, you can buy or sell a CFD whenever you wish and there is no time limit. You can choose to hold a CFD position for months, weeks or merely a few hours.

Unlike shares, you cannot take delivery of a CFD. Instead, you settle the difference between the opening and closing prices, and the difference is your profit or loss.

CFDs are not traded on a stock exchange, but are transacted directly with a London based specialist market maker regulated by the FSA (Financial Services Authority). Unless specifically negotiated you will have no shareholder voting rights. By the same token, you will not pay stamp duty (0.5% under current UK legislation) or any safekeeping or custody fees.

Dividends and Interest

A dividend adjustment is credited to long positions and debited from short positions held at the close of business on the day before the ex-dividend date. Payment is credited or debited to your account over the ex-dividend date.

Interest is calculated on CFD positions held overnight and is credited or debited on the next trading day. If you are holding a long CFD position, you pay the financing (akin to borrowing money to purchase the underlying equity) and if you are holding a short CFD position, you will receive the financing.