CFDs are traded on margin, meaning that instead of paying the full value of your situation, you as a traditional stock trading, you only pay an initial deposit. Varies from broker to broker, but usually 1-10% of the value of your position on the ranges.
Because CFDs are traded on margin, are subject to interest charges overnight positions - long positions are charged interest if they are held overnight, and short positions can be submitted to the interest. Interest news of the daily closing price of the CFD provider interest rate (usually based on the central bank's interest rate, although this can vary) is calculated by applying.
Going long
CFDs are the long, daily interest rate is calculated as follows: (LIBOR plus a margin) / = daily interest rate during the year
If we use Singapore as an example, let's assume that the Monetary Authority of Singapore as a CFD provider is using the same rate - currently 0.03% and the margin is 2.5%. Daily interest rates:
(0.03% 2.5%) / 365 = 0.0069%
To work daily interest charges, of interest to you daily rate is multiplied by the full value of your situation.
So let's say you have a long position in CFDs 1,000 CapitaLand shares, currently valued at $ 2.75 each opened. +2,750 Total value of state dollars, but you are trading in CFDs are stock rather than shares, you only pay a 5% margin to the business, or need to open $ 137.50.
Open every night to keep this position, you will be subject to an interest charge:
+2750 Billion (total value of position) x 0.0,069% (daily interest rate) = 0.19 dollars a day
The value of the interest charges as your situation changes over the length of your situation will change. Four days later, CapitaLand shares rose $ 2.95, you decide to take your profits.
2950 dollars (end state) - $ 2750 (open position) = $ 200 (gross profit)
Your net profit is your gross profit, minus commissions (CFD providers as low as 0.1%, so we'll use this data to offer commissions) minus the daily interest charges, fees, opening and closing. If we assume that the shares rose by 5c a day, will charge interest:
Day 1 - $ 2.800 x .0069% 0.19 = $
Day 2 - $ 2850 x .0069% = $ 0.20
Day 3 - $ +2900 x .0069% = $ 0.20
Day 4 - $ 2950 x .0069% = $ 0.20
Total interest charges = $ 0.79
If we assume a minimum commission charge of $ 25, its net profit:
$ 200 (gross profit) - $ 25 (commission charge) - $ 0.79 (Interest on 4 days) = $ 174.21
Not bad for an initial investment of $ 137.50!
Are less
When you are short on CFDs, traders are typically charged debit interest are accumulated rather than daily.
(0.03% - 2.5%) / 365 = -0.0068%
Total overnight interest rates are still daily interest is calculated by multiplying the total value of the position:
+2750 $ X -0.0068% = - $ 0.19
As the amount of interest is negative, it means you will still have to pay interest on your situation, even if you are going to lose.
If you have a country with a high interest rate had been trading in a market, you may receive interest.
Currently priced at $ 10.60, the price is going to drop you and you decide to sell the 1,000 stock CFDs. The total value of your position is $ 10,600 and a 5% margin to open the business, or pay $ 530.
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