A Long Trade

Below is an example of an opening trade in Reuters. The first investor is buying traditional shares, the second is using CFD's.

Trade 1: Result Profit

Opening Trade Buying Shares Buying a CFD
Price of Reuters 500p 500p
Number of Shares 2000 2000
Value of Position £10000 £10000
Stamp Duty (0.5%) £50 NIL
Commission £100 (1%) £50 (0.5%)
Deposit Required £5000 £500

After 5 days both investors sell their Reuters shares and make a profit.

Closing Trade Selling Shares Selling a CFD
Price of Reuters 515p 515p
Number of Shares 2000 2000
Value of Position £10300 £10300
Commission £103 £51.50
Financing Charges * NIL £12
Net Profit £50 £188
Return on Equity 0.50% 37.60%

Trade 2: Result Loss

Opening Trade Buying Shares Buying a CFD
Price of Reuters 500p 500p
Number of Shares 2000 2000
Value of Position £10000 £10000
Stamp Duty (0.5%) £50 NIL
Commission £100 (1%) £50 (0.5%)
Deposit Required £5000 £500

After 5 days both investors sell their Reuters shares and make a loss.

Closing Trade Selling Shares Selling a CFD
Price of Reuters 490p 490p
Number of Shares 2000 2000
Value of Position £9800 £9800
Commission £98 £49
Financing Charges * NIL £12
Net Loss £448 £311
Return on Equity -4.48% -62.20%

* position held over 5 nights

The CFD investor has paid a standard financing charge of £12 for holding the position. Interest is charged on an overnight basis: £10,000 x 6% (LIBOR + 2.75%) over 5 days = £12. Commission is charged as a percentage of the total value of a trade.

If the CFD investor takes a short position, they will receive interest in a similar fashion based on LIBOR -2.75%.

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