CFD Trading - Going 'Long' or 'Short'
CFD Trading - 'Going Long'
Trade ‘long’ if you believe prices will rise
When you believe a share price or an index is going to rise, you buy a CFD and you’ll make a profit if it goes up, but a loss if it goes down. This is known as a long position.
Follow the example below, using an index, to see how it works:
| You decide to buy 10 FTSE100 CFDs when the market is at 4496 - 4500 | |
| Price of FTSE100 CFD | £4,500.00 |
| Number of CFDs | 10 |
| Notional value of CFDs | £45,000.00 |
| Commission | £15.00 |
| Margin Requirement (5%) | £2,250.00 |
| Finance* | £8.94/day |
* When you take a long position using a CFD you must pay a daily financing rate based on LIBOR and the closing price of the share. So, to hold a long position overnight, you will pay LIBOR plus 2.5%. Assuming LIBOR stands at 4.75% on a given day, the rate would be 7.25%.
Financing is paid on the value of the holding of the underlying financial instrument, minus margin requirement.
What happens if the price goes up?
| 4 days later the FTSE100 CFD is quoted at 4628 – 4632 so you decide to sell your 10 CFDs and take your profit | |
| Price of FTSE100 CFD | £4,628.00 |
| Number of CFDs | 10 |
| Commission | £15.00 |
| Closing value | £46,280.00 |
| Opening value | £45,000.00 |
| Profit on trade | £1,280.00 |
| Commission | (£15.00) |
| 4 days financing @ £8.94 | (£35.76) |
| Overall profit on trade | £1,214.24 |
What happens if the price goes down?
| 4 days later the FTSE100 CFD is quoted at 4412 – 4416 so you decide to sell your 10 CFDs to close the position | |
| Price of FTSE100 CFD | £4,412.00 |
| Number of CFDs | 10 |
| Commission | £15.00 |
| Closing value | £44,120.00 |
| Opening value | £45,000.00 |
| Loss on trade | (£880.00) |
| Commission | (£15.00) |
| 4 days financing @ £8.94 | (£35.76) |
| Overall loss on trade | (£945.76) |
CFD Trading - 'Going Short'
Trade ‘short’ if you believe prices will fall
One of the best features of trading CFDs is that you can still make money even if you think a share price or index is going to fall by taking a short position. Going short means selling something at a high price, with a view to buying it back at a lower one and taking a profit.
Follow the example below, using an index, to see how it works:
| XYZ plc is currently trading at 825 pence per share, but you think the share price is going to fall so you sell 1000 XYZ plc CFDs | |
| Price of XYZ plc CFD | 825 pence |
| Number of CFDs | 1,000 |
| Notional value of CFDs | £8, 250.00 |
| Commission @ 0.20% | £16.50 |
| Margin Requirement (10%) | £825.00 |
| Finance* | £0.51/day |
* When you are take a short position using a CFD we’ll pay you a daily financing rate based on Sterling LIBOR and the closing price of the share. So, to hold a short position overnight you might typically be paid LIBOR less 2.5%. Assuming LIBOR stands at 4.75% on a given day, the rate would be 2.25%
Financing is credited on the value of the holding of the underlying financial instrument, minus margin requirement.
What happens if the price falls?
| 3 days later XYZ plc share price drops to 750 pence, so you buy back the CFD and take your profits | |
| Price of XYZ plc CFD | 750 pence |
| Number of CFDs | 1,000 |
| Commission @ 0.20% | £15.00 |
| Closing value | £7,500.00 |
| Opening value | £8,250.00 |
| Profit on trade | £750.00 |
| Total Commission | (£31.50) |
| 3 days financing @ £0.51 | (£1.53) |
| Overall profit on trade | £720.03 |
What happens if the price goes up?
| 3 days later XYZ plc share price goes up to 850 pence, so you buy back the CFD. | |
| Price of XYZ plc CFD | 850 pence |
| Number of CFDs | 1,000 |
| Commission @ 0.20% | £17.00 |
| Closing value | £8,500.00 |
| Opening value | £8,250.00 |
| Loss on trade | (£250.00) |
| Total Commission | (£33.50) |
| 3 days financing @ £0.51 | (£1.53) |
| Overall loss on trade | £281.97 |
There's no Stamp Duty to pay on CFDs*
One of the major attractions of dealing in CFDs is that you don't pay UK Stamp Duty. Because you never actually own any shares, there's no 0.5% Stamp Duty when you buy. Of course you may still be liable for Capital Gains Tax and tax rules may change. If you are CFD trading in Irish Equities please contact the dealing desk for further information.
*please note that tax laws may change
Your investments and any income from CFDs can go down as well as up. You can quickly lose more than your initial deposit. Please make sure you understand the risks. CFDs may not be suitable for everyone.
Apply Now for a CFD Account
Find out how to apply now for a CFD account, please make sure you have read and understood the key features of this account before you apply.
