Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

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CFD Examples

The best way to understand how CFDs work is to follow some examples.

1: Long trade with PROFIT

In this example an investor believes the share price of Barclays will rise. The investor wishes to go long (buy) £10,000 worth of Barclays shares priced at £2 each.
With a CFD, you only need to invest £2,000 (20% of £10,000) to open this position and unlike shares, you don’t pay 0.5% Stamp Duty.

Opening tradeBuying sharesBuying a CFD
Total value of shares£10,000£10,000
Initial outlay£10,000£2,000
Commission (0.25%)£25£25
Stamp Duty (0.5% on shares)£50£0

After 10 days, the share price rises to £2.10 and you sell at a profit. With a CFD, your deposit is returned to you, together with your profit minus any associated costs.

Closing tradeSelling sharesSelling a CFD
Closing value£10,500£10,500
Commission (0.25%)£26.25£26.25
Financing charges£0£8.40
Net Profit£398.75£440.35

Like normal share dealing, with CFDs you deal at the cash price of the share and pay a commission on both the open and the close, which is calculated as a percentage of the value of the transaction.

The above examples use our standard commission rate of 0.25%. Atlantic’s commission rates range from 0.2% to 0.5% (min £20) depending on account size.

The financing charge on a long CFD is based on Sonia + 2.5%. Based on current Sonia rates, on a £10,000 long position, this works out at around £0.84 per day.

2: Long trade with LOSS

In this example an investor believes the share price of Vodafone will rise. The investor wishes to go long (buy) £10,000 worth of Vodafone shares priced at £2 each.

To limit the risk, a stop-loss is placed at 194p. This means that if the share price falls to 194p, the position is closed. We recommend a stop-loss is placed on all CFD trades.

Opening tradeBuying sharesBuying a CFD
Total value of shares£10,000£10,000
Initial outlay£10,000£2,000
Commission (0.25%)£25£25
Stamp Duty (0.5% on shares)£50£0

After 10 days, the share price falls to 194p and the stop-loss is activated. With a CFD, your deposit is returned to you, minus your loss and any associated costs.

Closing tradeSelling sharesSelling a CFD
Closing value£9,700£9,700
Commission (0.25%)£24.25£24.25
Financing charges£0£8.40
Net Loss£399.25£357.65

Like normal share dealing, with CFDs you deal at the cash price of the share and pay a commission on both the open and the close, which is calculated as a percentage of the value of the transaction.

The above examples use our standard commission rate of 0.25%. Atlantic’s commission rates range from 0.2% to 0.5% (min £20) depending on account size.

The financing charge on a long CFD is based on Sonia + 2.5%. Based on current Sonia rates, on a £10,000 long position, this works out at around £0.84 per day.

3: Short trade with PROFIT

In this example an investor believes the share price of Tesco will fall. The investor wishes to go short (sell) £10,000 worth of Tesco shares priced at £2 each.

With a CFD, shorting a share is the ‘mirror image’ of buying it. As most traditional stockbrokers do not allow private investors to go short, an investor is unable to use shares to capitalise on a falling price.

Opening tradeSharesSelling a CFD
Total value of sharesn/a£10,000
Initial outlayn/a£2,000
Commission (0.25%)n/a£25
Stamp Dutyn/a£0

After 10 days, the share price falls to £1.90 and you sell at a profit. With a CFD, your deposit is returned to you, minus any associated costs.

Closing tradeSharesBuying a CFD
Closing valuen/a£9,500
Commission (0.25%)n/a£23.75
Financing chargesn/a£7.50
Net Profitn/a£443.75

Like normal share dealing, with CFDs you deal at the cash price of the share and pay a commission on both the open and the close, which is calculated as a percentage of the value of the transaction.

The above examples use our standard commission rate of 0.25%. Atlantic’s commission rates range from 0.2% to 0.5% (min £20) depending on account size.

The daily financing on a short CFD is based on Sonia – 2.5%. Based on current Sonia rates, on a £10,000 short position, this works out at around £0.75 per day.

2:Short trade with LOSS

In this example an investor believes the share price of Tesco will fall. The investor wishes to go short (sell) £10,000 worth of Tesco shares priced at £2 each.

With a CFD, shorting a share is the ‘mirror image’ of buying it. As most traditional stockbrokers do not allow private investors to go short, an investor is unable to use shares to capitalise on a falling price.

Opening tradeSharesSelling a CFD
Total value of sharesn/a£10,000
Initial outlayn/a£2,000
Commission (0.25%)n/a£25
Stamp Dutyn/a£0

After 10 days, the share price rises to £2.10 and you sell at a loss. With a CFD, your deposit is returned to you, minus your loss and also any additional associated costs.

Closing tradeSharesBuying a CFD
Closing valuen/a£10,500
Commission (0.25%)n/a£26.25
Financing chargesn/a£7.50
Net Lossn/a£558.75

Like normal share dealing, with CFDs you deal at the cash price of the share and pay a commission on both the open and the close, which is calculated as a percentage of the value of the transaction.

The above examples use our standard commission rate of 0.25%. Atlantic’s commission rates range from 0.2% to 0.5% (min £20) depending on account size.

The daily financing on a short CFD is based on Sonia – 2.5%. Based on current Sonia rates, on a £10,000 short position, this works out at around £0.75 per day.

 

CFDs Explained

What are CFDs?

CFD Examples