CFDs fully emulate the price of the underlying asset, which is taken directly from the underlying exchange or delivered by the liquidity providers. CFDs are not only quoted, but also traded in the local currency. That means that you gain exactly the same exposure as if you were trading the underlying product. This includes the currency exposure too, as any profit or loss will be calculated in the local currency of the asset. For example, if you trade US shares the margin and profit or loss will be calculated in USD, in case of German shares this will be Euros, and with UK shares – Sterling.
As we are compensated by the spread, i.e. the difference between bid and offer, or the sell and buy price, a mark-up is added to the quote.
Spread is considered the main cost for the trader, but it should never be considered on its own in the context of trading costs as funding costs and rollover cost can come into play as well. You do not pay any commissions on top of the spread as everything is already incorporated into it. What is more important, our spreads are tight and fixed (T&Cs obviously apply).
Let’s look at the benchmark index of the UK’s leading companies, the UK100, which represent the underlying FTSE100. Our spread equals 1 point. In order for you to make profits the market has to move by at least one point. So, if you bought while our quote was 5903.50-5904.50, the market has to move by one point in your favour, before you start making profit. If it moves to 5904.50-5905.50, you break even, as you will sell at 5904.50 to close the position. Any price higher than that means you are in profit.
If the spread was let’s say 2 points, then you would need to wait for the markets to move at least by 2 points, before starting to make any profits. Hence, the smaller the spread, the quicker you may get into profits, as it takes less.
Low life cycle costs
The initial spread is not the only cost of trading. The full lifecycle costs of a spread betting or CFD position comprise of the initial spread , the overnight funding costs and the rollover costs (for futures positions). To the best of our knowledge we have amongst the lowest lifecycle costs in the industry.
Initial Spreads and Rollover Costs
Not only do we have very competitive initial spreads, our rollover costs are very low. And unlike some of our competitors we mean what we say! When we say we charge 50% of bid offer for rollovers that means that the difference between the closing price of the old position and opening price of the new position is 50% of our standard spread for that market.
Holding a position overnight incurs funding costs. Our platform offers funding costs of as low as 2.5% on the top of the applicable market interest rate.
When you trade CFDs you deal in contracts, which are pre-defined and market specific and will differ from asset to asset. In general, 1 Share-CFD equals 1 share of the underlying equity. So if you are looking to gain exposure in 10,000 shares of Glencore International PLC, you would need to trade 10,000 Glencore CFD-shares.
It works slightly different with the indices, when trading them you need to pay attention to what is called contract value, which determines the exposure. So if for example the UK100 (which represents FTSE100) has got a contract value of £1, by entering into one contract you will gain or lose £1 per point movement.
You can find all the details relating to the contract sizes and values in the Product Information Section.
Leverage - your choice with variable margins
You can fully participate in the price action of the underlying instrument without having to contribute the full amount usually necessary for the transaction. As a trader/investor you only provide a fraction of the total amount and as the rest of the investment is provided by us, you are still able to fully participate in the total income from the investment.
Suppose that the FTSE is now at 5000, the margin is 1%, i.e. 50 you need to deposit and you are long. This gives you a leverage of 100, meaning that you move a total value 100 times larger than your initial outlay.
Should the market move by 1% to 5050, you would have made a profit a 100 % (by investing 50 you gain 50). This may also work the opposite way. If the market moves down by 1%, to 4950, you lose 100% of your initial capital. i.e. 100% of your investment.
The application of leverage magnifies the price movements in the markets. It can magnify both the profits as well as losses. The losses can exceed your initial outlay.
You should however bear in mind, that borrowed capital usually attracts interest charges; hence these costs may reduce the overall profits from the investment (or add up to the losses). Funding costs are considered the component that compensates for the expenses of the issuer.