Frequently Asked CFD Trading Questions
This section is dedicated to answering commonly asked questions about trading CFDs.
Is there maximum opening Contract Value?
Only the cash in your account available to meet the Margin requirement and the ability of the broker to deal in the underlying shares limits the maximum Contract Value.
In principle there is no minimum opening contract value and you can execute trades at any level, although in practice in order to get the most out of the leverage effect that CFDs provide the normal smallest contract value for CFDs is around £10,000.
£5,000 (or other currency equivalent) is required.
Marking to market is a daily adjustment to the margin requirement based on the movement in the value of the underlying asset. You must cover any shortfalls in margin immediately. If they are not your position may be closed irrespective of your wishes. Margin deposits are required in cleared funds, but mark to market excesses or deficits are not credited or debited to your margin account until closure of the position.
There are no expiry dates on CFDs, as a result you can run a position, long or short, for as long as required.
Whilst they are exempt from stamp duty, any profits on CFDs may be subject to CGT (Capital Gains Tax) but losses may also be offset against CGT.
CFDs are only suitable for investors with sufficient experience and knowledge. Experienced investors will be registered as intermediate customers under FSA classification. As an intermediate customer you waive the protections provided for private customers and you must sign and send Blue Index a copy of the intermediate customer notice which Blue Index will send you.
As a holder of a long or short CFD you do not pay the full underlying value of the contract. However, you are required to deposit margin as collateral known as initial margin. Initial margin is calculated as a percentage of the full contract value and the rate varies according to the market capitalisation and volatility of a particular share. For example if the initial margin is set at 10 % you can go long or short of a CFD worth £100,000 and deposit just £10,000, gaining ten times leverage.
CommissionCommission is charged on for either side of the contract, as a percentage of the total contract value. There are no hidden costs and you deal at the market price as we do not widen the spread of the share. Blue Index is committed to offering a competitive commission rate which includes all the advice and monitoring you require.
Financing
Clients pay interest on the contract value of a long CFD. Interest is charged at a percentage over LIBOR (LIBOR is the London Interbank Offered Rate and is linked to base interest rates).
Clients holding short CFD contracts receive interest on the cash that the sale of the underlying stock would have generated. This is similarly paid at an agreed rate under LIBID (London Interbank Bid Rate).
For example, If a client was paying a long CFD funding charge of perhaps 2 % over LIBOR and if LIBOR was 4 %, the client would be paying a funding rate of 6 % per annum. If the total contract value was £100,000 the funding charge would be around £16 for every day the contract was maintained (£6,000 divided by 365). This amount would be debited daily from your CFD account. The funding charge is only incurred if the position is held overnight. These amounts will be credited or debited on the next trading day.
