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Risk Warning
You decide that ITV shares look attractive and are going to rise. You call your account manager at Prime CFDs and excecute the CFD trade at the prevailing price of the underlying shares or better. You pay no stamp duty.
| Share price of ITV | 100.00p |
| Number of shares |
10,000 |
| Value of position | £10,000 |
| Commission | -£50 (0.005) |
| Initial margin requirement | £500 |
Closing the Position
10 days later ITV shares have risen. You decide to close the position at a profit.
| Share price of ITV | 105.00p |
| Number of shares | 10,000 |
| Value of position | £10,500 |
| Commission | -£52.50 (0.005) |
| Financing cost (position held over 10 nights)* | -£21.23 |
| Total costs | -£123.73 |
| Total monies required to open and close position | £623.73 |
| Total profit after costs | £376.27 |
| Percentage profit | 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.
* Overnight Financing
If you hold a Long CFD trade position open overnight you pay a financing charge based on sterling LIBOR and the closing value of the shares. In this example the financing rate is LIBOR + 3%. LIBOR is 4.75% and the closing price of ITV on the day of the opening trade is 100.00p.
So financing charge rebate = 10,000 x 100.00p x 7.75% (4.75% + 3%) = £775 per year/365days = £2.12 per day
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Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it carries a high degree of risk. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. If in any doubt, please seek independent financial advice.