What are Equity CFDs?

Equity CFDs are very simple type of derivative. They have been used as an investment vehicle for many years and today account for about 30% of the volume on the London Stock Exchange.

Trading an Equity CFD is very similar to normal share dealing. The CFD is essentially a synthetic equity position and the price of the CFD will exactly mirror the underlying equity price. However you do not have to pay the full value of the shares, instead you put up a deposit (margin) which is normally 10% of the full contract value. The deposit (margin) required will depend on the market capitalisation and volatility of the share.

The contract is revalued at the close of business each day and any resulting margin calls are made. Alternatively, any profit as a result of the revaluation is paid to the client. These monies are credited or debited daily to your margin account.

While your position remains open, your account is debited or credited to reflect interest and dividend adjustments. If you are long you receive dividends and pay interest, if you are short you do the reverse.

Unlike cash equities, equity CFDs have no settlement period and you can keep the position open indefinitely, providing there is enough margin in your account to support the position.

CFDs utilise leverage, and can be very high risk, so they are only available to clients who have the experience and resources to deal in these type of investments.

For more detailed information on CFDs click on the links on the right or give us a call on +44 (0) 20 7398 2555.