What is a CFD - Worked Example

Trades are held for 3 months in each of the examples

Example 1 - a long trade

Client A has £2500 to invest. He buys 500 Barclays at 502p through his normal stockbroker, paying 0.4% commission and stamp duty/SDRT at 0.5%. After one month Barclays pays a net dividend of 20p.

Client B also has £2500 to invest. He buys a long CFD referenced to 5000 Barclays shares at 502p, depositing the £2500 as initial margin. He pays 0.25% commission and a funding rate of 2% over LIBOR. LIBOR is 4%.

Client C also has £2500 to invest. He opens a £50 per penny long Spreadbet on Barclays with a long dated expiry, similarly depositing £2500 as initial margin. He pays a round trip spread of 8p. The net effect of the dividend and financing costs over three months is reflected in the 7p opening price discount that the Spreadbetter offers.

Long	Client A Stock Trade	Client B CFD Trade	Client C Spreadbet
Opening Spread	501 - 502	501 - 502	487 - 495
Opening trading Price	502	502	495
Opening Commission	10	63	-
Stamp Duty	13	-	-
Net Cost of Opening	23	63	0
Dividend Received	100	1000	-
Financing Costs	-	377	-
Net Credit for Running Position	100	623	0
Closing Spread	511 - 512	511 - 512	508 - 516
Closing Price	511	511	508
Closing Commission	10	64	-
Net Cost of Closing	10	64	0
Summary
Gross Profit	45	450	650
Net Cost of Opening	23	63	0
Net Credit for Running Position	100	623	0
Net Cost of Closing	10	64	0
Net Profit	112	946	650
Total Return	4.5%	37.7%	26.3%

Example 2 - a short trade

Jump to Example 1 - a long trade

Client A is looking to short Barclays shares. His stockbroker allows him to short 2.5 times his £2500 on account with a 20-day settlement (T+20), charging 0.4% commission. The client sells 1250 shares at 500p each.

Client B decides to trade a short CFD referenced to 5000 Barclays shares at 500p, depositing the £2500 as initial margin. He pays 0.25% commission. He has no running costs. On the contrary, he is credited a short rebate for every day that the position is held at a rate of 2% below LIBID. LIBID is 4%.

Client C decides to open a £50 per penny short Spreadbet on Barclays with a long dated expiry, similarly depositing £2500 as initial margin. He pays a round trip spread of 8p. The effect of the financing costs over three months is reflected in the 2p opening price premium that the Spreadbetter offers.

Short	Client A Stock Trade	Client B CFD Trade	Client C Spreadbet
Opening Spread	500 - 501	500 - 501	502 - 510
Opening Trading Price	500	500	502
Opening Commission	25	63	-
Stamp Duty	-	-	-
Net Cost of Opening	25	63	0
Stamp Duty - Two Rollovers	63	-	-
Commission - Two Rollovers	50	-	-
Financing Received	-	125	-
Cost of Running Position	113	125	0
Closing Spread	490 - 492	490 - 492	487 - 495
Closing Price	492	492	495
Closing Commission	25	62	-
Stamp Duty	31	-	-
Net Cost of Closing	56	62	0
Summary
Gross Profit	200	400	350
Net Cost of Opening	25	63	0
Cost Of Running Position	113	125	0
Net Cost of Closing	56	62	0
Net Cost of Closing	0	62	0
Net Profit	6	400	350
Total Return	0.3%	16.0%	13.9%

If you do not fully understand any of the terminology used, please call our sales desk on
0207 144 5678. We will be happy to help and provide clarification.

GNI touch which is a trading name of MF Global UK Limited and is authorised and regulated by the Financial Services Authority. CFDs are only available to institutional or experienced investors. If in doubt you should seek independent advice. Securities and derivatives markets are subject to rapid and unexpected price movements and you may get back less than you invested or be required to make unlimited additional contingent payments if the market moves against you. CFDs are not available to US residents. Telephone calls and e-mails to and from MF Global UK Limited / GNI touch maybe recorded and / or monitored for regulatory and training purposes. Basis and levels of stamp duty / SDRT may change. Registered Office : Sugar Quay , Lower Thames Street, London, EC3R 6DU Registered in England No. 1600658