Authorised and regulated by the Financial Services Authority

CFDs vs Physical Trading

The CFD trading example supplied below shows how a CFD trade compares with a conventional equity trade.

Example 1 - Long Trade in ITV

Two investors believe that ITV shares will go up in the short to medium term.

Client A has £10,000 to invest. He buys the share in the traditional manner through his regular broker.

Client B also has £10,000 but he has deposited this in his CFD margin account through Blue Index. He can use these funds to take long and short positions as he sees fit.

 

Opening Trade Share	Client A Share Trade	Client B CFD Trade
Price of ITV	100p	100p
Number of shares	10,000	10,000
Value of position	£10,000	£10,000
Stamp Duty	£50
Commission	£100 (0.01)	£50 (0.005)
Total monies required to open position	£10,150	£550*

 

* Initial margin plus commission. Initial margin in this case is 5%. This margin must be maintained and any loss on the position must be met in order to control the position.

Closing the position 10 days later ITV shares have risen to 105.00p, you decide to close at profit.

Closing the position	Client A Share Trade	Client B CFD Trade
Price of ITV	105p	105p
Number of shares	10,000	10,000
Value of position	£10,500	£10,500
Commission	£105 (0.01)	£52.50 (0.005)
Financing cost (position held over 10 nights)		£21.23
Total costs	£255	£123.73
Total net profit on trade	£245	£376.27
Total monies required to complete trade	£10,255	£623.73
Profit after costs	£245	£376.27
Percentage profit	2.45%	75.25%

This example is obviously a favourable outcome, if the share price had moved against you, the leverage effect would have magnified your losses.

Example 2 - Short Trade

Client A's traditional stockbroker is unlikely to allow him to sell shares he does not already own. Thus using traditional share trading he is likely to be unable to profit from a fall in the price of a share.

Client B can go short as easily as he can go long by trading CFDs and can take a negative or a positive view on a share. Click here to see an example Equity Short CFD Trade

Free weekly trading updates straight to your inbox

Your Full Name

Your Email Address

Read terms and condtions